Home prices in 20 US cities fall at record pace in July

Source : Business Times - 2 Oct 2008

More contraction to come should banks stiffen lending rules in months ahead

House prices in 20 US cities declined in July at the fastest pace on record, signalling the worst housing recession in a generation had yet to trough even before last month’s credit crisis.

The S&P/Case-Shiller home-price index released on Tuesday dropped 16.3 per cent from a year earlier, more than forecast, after a 15.9 per cent decline in June. The gauge has fallen every month since January last year, and year-over-year records began in 2001.

The US housing slump is at the centre of the meltdown in financial markets as declining demand pushes down property values and causes foreclosures to mount. Banks will probably stiffen lending rules even more in the coming months to limit losses, indicating that residential real estate will keep contracting and consumer spending will continue to falter.

‘The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well,’ said Derek Holt, an economist at Scotia Capital Inc in Toronto.

Home prices decreased 0.9 per cent in July from the prior month after declining 0.5 per cent in June, the report showed. The figures are not adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

Prices dropped in 13 cities month-over-month, compared with 11 in June. Las Vegas saw values fall 2.8 per cent in July, the largest decline.

Economists forecast that the index would fall 16 per cent from a year earlier, according to the median of 23 estimates in a Bloomberg News survey. Projections ranged from declines of 14.5 per cent to 16.5 per cent.

Compared with a year earlier, all 20 areas showed a decrease in prices in July, led by a 30 per cent drop in Las Vegas and a 29 per cent decline in Phoenix.

‘While some cities did show some marginal improvement over last month’s data, there is still very little evidence of any particular region experiencing an absolute turnaround,’ David Blitzer, chairman of the index committee at S&P, said in a statement.

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.

Sales of previously-owned homes fell 2.2 per cent in August from the prior month and were 32 per cent below their historic high reached in September 2005.

Declining home construction has subtracted from growth since the first quarter of 2006, pushing the economy to the brink of a downturn.

US homebuilders, buffeted by at least US$19 billion in losses since 2006, will ask lawmakers to pass a US$15,000 tax credit for all homebuyers, replacing a US$7,500 incentive enacted earlier this year that they contend failed to stimulate demand.

‘Our members are really hurting,’ Jerry Howard, the chief executive officer of the National Association of Home Builders, said in an interview on Monday. ‘The tax credit passed in July seems to have failed to have sparked interest.’