Housing Slump Continues

By Jennifer Yousfi
Managing Editor

Housing prices continue to fall in 20 major metropolitan areas, according to the S&P/Case-Shiller home-price index released yesterday (Tuesday).

The index dropped 12.7% in February from a year ago, a bigger drop than was anticipated and the largest decline since the index's inception in 2001. The index has had back-to-back monthly declines since January 2007 as the United States has suffered through the worst national housing slump in a generation.

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“This is just one more strain for consumers, in addition to high energy prices and tight credit,” Michelle Meyer, an economist at Lehman Brothers Holdings Inc. (LEH) in New York, told Bloomberg News. “Prices are going to continue to fall, probably through the end of next year.”

With an estimated 900,000 vacant homes, representing an 11-month supply, on the market, it's unlikely the housing market will see a rebound any time soon.

And the trouble is widespread with 19 of the 20 cities in the index registering year-over- year price declines for February, with homes in Las Vegas (down 23%) and Miami (down 22%) suffering the most. Charlotte was the only bright spot, registering a price increase of 1.5% for the month.

With the family home representing many Americans' largest asset, the steady decline in price has led to waning consumer confidence about the state of the U.S. economy. As home equity values dwindle, both consumer spending and financial optimism have been curbed.

"We think it very likely that the plunge in home prices is a key driver of the collapse in consumers' confidence," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics, MarketWatch reported.

The gloomy housing market will weigh heavy on the minds of Federal Open Market Committee members, who will vote later today (Wednesday) on whether or not to cut the Fed funds rate. It is expected the FOMC will make a 25-basis point cut.

U.S. Federal Reserve Chairman Ben S. Bernanke has moved to slash the central bank's key interest rate six times since mid-September, but homeowners with adjustable rate mortgages are still feeling the pinch as banks continue to tighten lending standards and remain skittish about refinancing subprime loans.

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