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S&P/Case-Shiller Home Price Index Falls Record 10.7% (Update1)

S&P/Case-Shiller Home Price Index Falls Record 10.7% (Update1)
By Bob Willis

March 25 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell in January by the most on record, a sign the housing recession is deepening, a private survey showed today.

The S&P/Case-Shiller home-price index dropped 10.7 percent from January 2007, after a 9 percent decrease in December. The gauge has fallen for 13 consecutive months.

Price declines will continue as foreclosures add to a glut of unsold properties, and stricter lending rules make it harder to get financing. Declining values leave homeowners feeling less wealthy and with less home equity to borrow against, undermining consumer spending and pushing the economy closer to a recession.

``It's not good for the short term, the dynamics of investment and consumption in the U.S. economy, but eventually affordability will improve,'' Roger Kubarych, chief U.S. economist at Unicredit Global Research in New York, said in an interview with Bloomberg Television. ``This extends the period in which housing is weak.''

The home price index was forecast to decline 10.5 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. Projections ranged from declines of 9.5 percent to 11 percent.

January home prices fell 2.4 percent from a month earlier, following a 2.1 percent decline the prior month, the Case- Shiller report showed. The figures aren't adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month to month.

Biggest Declines

All but one of the 20 cities in the index showed year-over- year declines in prices in January, led by drops of 19.3 percent in Las Vegas and Miami. Prices rose in Charlotte.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

Lehman Brothers Holdings Inc. is among investment banks forecasting home prices as measured by Case-Shiller will decline another 10 percent. It predicts new-home sales will bottom in the middle of this year and existing-home sales and housing starts will reach a trough in the third quarter.

Sales of existing homes unexpectedly rose in February for the first time in seven months, while the median price of single-family existing homes fell 8.7 percent from a year earlier, the most in four decades of record keeping, the National Association of Realtors said yesterday.

``Prices have reached what might be called a fair value,'' Dan North, chief U.S. economist at Euler Hermes ACI in Owings Mills, Maryland, said in a Bloomberg Television interview before the report. ``However, prices have still got to go substantially past that'' to trigger demand and a recovery.

Recession Forecasts

Increasing numbers of economists are predicting that the economy has entered, or will soon enter, its first recession since 2001. Martin Feldstein, the Harvard economist who heads the research institute that determines when recessions begin, on March 14 said he thought the downturn began and would be the worst since World War II.

``The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,'' the Federal Reserve said March 18 after it cut its benchmark lending rate by three-quarters of a point to 2.25 percent. ``Downside risks to growth remain.''

U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners couldn't sell or refinance as prices fall, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said March 13.

Mortgage Resets

About $460 billion of adjustable-rate mortgages are scheduled to reset this year, according to analysts at Citigroup Inc.

Financial sector losses and job cuts have been mounting since August, when subprime mortgage defaults began escalating, undermining the value of bonds backed by those loans.

Citigroup Inc. will cut 2,000 more trading and investment- banking jobs than previously announced, a person familiar with the plan said last week. That's on top of about 4,000 disclosed in January.

``This year we will have a larger number of reductions as we continue to strengthen the business and lower our expense base,'' the bank said in an emailed statement.

To contact the reporter on this story: Bob Willis in Washington at [e-mail]
Last Updated: March 25, 2008 09:25 EDT


LINK: http://www.bloomberg.com/apps/news?pid=20601087&sid=a4kZQNXUFpW4&refer=home