US house prices fall in October, set to tumble further still
House prices fell across the US in October and have dropped roughly 2 percent nationwide since June, according to data released by Standard & Poor's Tuesday.
The news sent a sharp reminder that real estate remains a weak spot in the recovering US economy, and that the price declines that began four years ago probably aren't finished. One potential reason for the decline: the impact of a temporary tax credit designed to lure home buyers has faded.
Atlanta has fallen the furthest in the month since June. Prices in the Atlanta metro area are down 5.86 percent since then. That includes a 3 percent drop in October alone, which was also the most of any of the 20 cities in the S&P Case-Shiller index.
Prices fell in October in every city in the index, from Miami and Washington to San Diego and Seattle. Overall, the 20-city index was down 1.3 percent for the month, and has fallen 1.8 percent since June.
Six metro markets – Atlanta; Charlotte, N.C.; Miami; Portland, Ore.; Seattle; and Tampa, Fla. – hit their lowest levels since home prices started to fall in 2006, although many other cities are still above lows reached in the spring of 2009.
"Although prices are falling again in all 20 cities, they are not in a freefall, as they were in 2007 and 2008," Patrick Newport, a housing analyst at IHS Global Insight, wrote in an analysis of Tuesday's numbers. The forecasting firm expects house prices to drop another 6 to 8 percent, he says, "and then turn around" after bottoming in 2011.
The Case-Shiller house price index is based on three-month moving averages, so October's readings may be only the second report to fully reflect the expiration of the federal tax credit, which helped to support housing transactions through June. The size of the price declines in October came as a surprise to analysts.
If the tax credit caused a kind of artificial rise and then fall in the housing market, other forces will now have a bigger effect on home prices going forward. Foreclosures and a glut of homes for sale are major reasons analysts expect modest home price declines to continue in many cities. But an improving economy could offset that trend, helping to buoy demand for homes as the job market improves.
Interest rates are a wild card. It's unclear if mortgage rates will keep rising, and thus diminish the amount that home buyers can afford to bid. Even though rising rates pose a threat to the market, in the short run they could lure some buyers into the market, as people worry that attractive rates may disappear.
Home prices have ridden a roller coaster over the past decade, with a dazzling upward surge followed by a harrowing bust in many markets. Prices in some markets have fallen sharply since 2006, but are still up for the decade, even after adjusting for inflation. Those include Los Angeles, New York, Seattle, Boston, and Washington.
Other boom cities have fallen harder, with home prices now down for the decade on an inflation-adjusted basis. Those are Phoenix and Las Vegas. In those cities, home prices are now roughly where they were in 2000, while a 27 percent advance would have been needed to keep pace with inflation.
Detroit has fared the worst of any city in the Case-Shiller index over the past decade, with prices down 31 percent even before adjusting for inflation.
