US home prices drop record 18 pct on year in Oct

Reuters
12/30/2008
Source …..

Prices of U.S. single-family homes plunged a record 18.0 percent in October from a year earlier, Standard & Poor’s said on Tuesday, with the drop in prices accelerating as the broader economy deteriorates.

Prices fell at the fastest monthly pace since March, an indication that government steps, such as encouraging lenders to modify delinquent loans, have not cushioned the housing bust, which continues to weigh on the economy.

“So far all of the government efforts to help the housing market have not worked and the situation will probably worsen until there is an improvement in the jobs market,” said Peter Morici, economist and professor of business at the University of Maryland in College Park, Maryland.

“The housing market should continue to tumble for a while and there is no reason to believe that home prices will stop falling unless more is more done to stem the foreclosures and boost the jobs market,” he said.

The Standard and Poor’s S&P/Case-Shiller Home Price Index for 20 metropolitan areas fell 2.2 percent in October from September, accelerating for the fourth straight month.

The price drops, both on a year-over-year and month-over-month basis, were more severe than analysts had expected, based on a Reuters survey of economists.

Several factors such as employment have worsened since October and Morici expects prices to continue falling.

“People are skeptical about the underlying value of properties, which is making them cautious and fearful,” he said.

S&P said its composite index of 10 metropolitan areas declined 2.1 percent in October from September for a 19.1 percent year-over-year drop, also a record for the index which dates back to 1988.

“The bear market continues; home prices are back to their March 2004 levels,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.

Through October, Standard & Poor’s index of prices in 10 cities has fallen 25.0 percent from its mid-2006 peak, and the index of prices in 20 cities has dropped 23.4 percent, he said.

The 20-city index dates to 2000.

The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.

The crumbling housing market has rippled through the recession-hit economy by cutting personal wealth, curtailing construction and undermining sales of appliances and furniture.

Economists believe the housing market will not begin to recover until home prices fall far enough to stimulate demand, which has dropped off precipitously as potential buyers stay sidelined.

Data through October showed continued broad-based declines in the prices of existing single family homes across the United States, with 14 of the 20 metro areas showing record rates of annual decline and 14 reporting declines in excess of 10 percent versus October 2007.

Phoenix remains the weakest market, reporting an annual decline of 32.7 percent, followed by Las Vegas, down 31.7 percent, and San Francisco down 31.0 percent.

Prices in Miami, Los Angeles and San Diego were close behind, with annual declines of 29.0 percent, 27.9 percent and 26.7 percent, respectively.

New York, buoyed by plentiful jobs and big bonuses in the financial sector in recent years, showed a more modest annual decline of 7.5 percent.

Home prices in New York, however, are considered to be vulnerable headed into next year, with rampant financial sector layoffs expected to take a toll on real estate.