Home Prices Continue To Fall

While some economic data lately has proved hopeful, home prices haven't. As far as economists are concerned, they're moving in the wrong direction, down for a fifth straight month, according to the S&P Case-Shiller Home Price Indices.

For some economists, that raises the possibility of a double-dip housing recession in 2011. That would be bad news for federal policy makers, who would be faced with battling inflation in food and energy costs, and deflation in housing.

The latest numbers are not encouraging, showing a deceleration in the annual growth rates in 17 of the 20 Metropolitan Statistical Areas (MSA) and the 10-and 20-City Composites compared to what was reported for October 2010. 

The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6 percent from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels. In November, only four MSAs -- Los Angeles, San Diego, San Francisco and Washington DC -- showed year-over-year gains.

The news isn't very encouraging when it comes to sales, either. The Commerce Department reported today that new home sales in 2010 totaled a paltry 310,000 units, down more than 14% from 2009. Builders are under enormous pressure to try to sell new homes in markets flooded with foreclosures. And that, again, brings us back to price weakness. Until the cost of new construction and existing homes are roughly equal, economists say it will be hard for the market to recover.

Eight markets find new lows

The Composite indices remain above their spring 2009 lows; however, eight markets -- Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa -- hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009. their prior month's pace. 

Since May 2010, the housing market has experienced an unambiguous deceleration in home price returns. The 10-City Composite has reentered negative territory with a -0.4% annual growth rate in November, versus the +5.4%  reported six months prior in May, and the 20-City Composite was down 1.6 % in November versus its +4.6% May print.

"With these numbers more analysts will be calling for a double-dip in home prices," said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

What's a double-dip?

Blitzer defines double-dip as seeing the 10-and 20-City Composites set new post-peak lows.

"The series are now only 4.8% and 3.3% above their April 2009 lows, suggesting that a double-dip could be confirmed before spring," Blitzer said. "Certainly eight cities setting new lows, and with the only positive news concentrated in southern California and Washington DC, the data  point to weakness in home prices."

With an annual growth rate of +3.5% in November, Washington DC was the strongest market, but still well below the +7.7% annual rate of growth seen in May 2010. The only city with a gain in November was San Diego, up a scant 0.1%.