By Don Miller
Home prices in the U.S. plummeted a record 19% in January from a year earlier, as demand plunged and foreclosures continued their relentless rise, according to an industry report released today (Tuesday).
The January S&P/Case-Shiller index fell more than forecast and topped the 18.6% decrease in December. The gauge of 20 U.S. real estate markets has fallen every month since January 2007, indicative of a U.S. housing market in the throes of a deep recession.
"There are very few bright spots that one can see in the data," David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. "Most of the nation appears to remain on a downward path."
The U.S. housing market is in its worst slump since the Great Depression, as massive supplies of unsold homes have combined with a credit market crunch to spur a record level of foreclosures and crush home prices.
Average home prices across the U. S. are now at levels not seen since late 2003. As of January 2009, the 20-city composite is down 29.1%, from its peak in the second quarter of 2006. A measure of the 10 largest cities is down 30.2%.
The drops on month-over-month and year-over-year bases were bigger than expectations based on a Bloomberg survey of economists.
"There is still a lot of downward momentum," Michelle Meyer, an economist at Barclays Capital Inc. (ADR: BCS) in New York told Bloomberg. "We don't think we'll see a bottom in home prices until the second half of next year. The decline in home prices will continue to depress household balance sheets."
Of the 20 metro areas, 13 showed record rates of decline in January, and 14 areas reported declines in excess of 10% compared to January 2008. Nine of them fell more than 20% in the last year.
S&P said its composite index of 10 metropolitan areas declined 2.5% in January from December for a 19.4% year-over-year drop, also a record. The 10-city index dates back to 1988.
Foreclosures kept up the pressure on prices, as homeowners trying to sell were forced to drop prices to compete. Foreclosures soared 29.9% in February compared to a year ago after rising 17.8% in January, according to RealtyTrac Inc. One out of every 440 homes is in some stage of foreclosure, the company estimated. The glut of unsold properties keeps prices low, reducing household wealth and crimping consumer spending, the engine of the economy.
Still, sales of new and existing homes rose in February for the first time since the recession began. Analysts are hoping the figures indicate the four-year long slump in the housing industry may finally let up as government efforts to loosen credit and motivate borrowers with low interest rates begin to take hold.
"Arresting the slide in home prices will be key to ending the recession," John Silvia, chief economist at Wachovia Corp. (WB), told Bloomberg before the report came out. Other recent data suggests "the housing slump may be nearing a bottom," he said.
Recent reports show builders may be buying into the notion of better times ahead. Home builders started work on 22% more homes in February than they did in January – when new home starts plunged to a record low – raising hopes the industry may be closer to reaching a bottom.
In another hopeful sign, Los Angeles-based KB Home (KBH), a homebuilder that targets first-time buyers, said last week net new-home orders rose 26% from a year earlier, the first gain since 2007. It also reported a narrower loss in the quarter ended Feb. 28.
Federal Reserve officials remained confident the economy would show signs of life by year-end, though they caution that any economic recovery will be slow and deliberate.
"Resumption of growth should not be too far off," Minneapolis Fed President Gary Stern said in a speech on March 26. He predicted the economy would slowly respond to over $12 trillion in government loan programs and monetary stimulus, including the Obama administration's $787 billion fiscal package.
"Once under way, the pace of expansion is likely to be subdued for some time," he added.
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