No Bottom Yet For Housing As Prices Keep Falling

The price of the average home in the nation’s largest cities continues to get cheaper. Yet as prices fall, it’s not stimulating sales. Stopping the housing slide is one of the biggest economic challenges facing policymakers.

S&P Case-Shiller’s Home Price Indices show a further slowdown in the annual growth rates in 13 of the 20 Metropolitan Statistical Areas (MSA) and the 10- and 20-City Composites compared to the December 2010 report. 

While the data is three months removed from the present, there is no reason to believe that the situation has improved in the intervening time. The latest existing and new home sales data, for February 2011, show big declines in sales and a drop in median prices.

San Diego and Washington only bright spots

According to S&P Case-Shiller, there are only two major cities where prices are gaining strength – San Diego and Washington, DC.

“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20-City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now.”

Ironically, housing has only gotten worse as the economy has begun to recover. Prices remained fairly stable, along with sales, throughout 2009 because the federal government offered a generous tax credit to home buyers. Once the tax credit went away, so did the buyers.

Housing recession not over yet

Blitzer says the housing market recession is not over and none of the statistics he’s seen indicate there is any form of sustained recovery on the horizon.

“At worst, the feared double-dip recession may be materializing,” he said.

A few months ago, S&P Case-Shiller defined a double dip housing recession as seeing the 10- and 20-City Composites set new post-peak lows.  The 10-City Composite is still 2.8 percent above and the 20-City is 1.1 percent above their respective April 2009 lows, but both series have moved closer to a confirmed double-dip for six consecutive months. 

This is all bad news for anyone hoping to sell their home, but especially for those who purchased during the housing bubble and find themselves owing more on their mortgage than they home is now worth. It is these owners who are most in danger of foreclosure, since they are unable to sell if they have to.

It’s quite a different situation for consumers who hope to buy a home, though there are plenty of obstacles. While affordability has never been better, lending requirements are back to pre-bubble levels.

Buyers must have good credit and a significant down payment. Of course, it’s more manageable if you are buying a house at a pre-bubble price. Increasingly, more and more consumers may be able to do that.