Home prices declined in most major cities across the U.S. in December for the fourth straight month, according to the Standard and Poor’s/ Case-Shiller home price index, despite lower unemployment figures and recent home sales gain.
Homes are now worth what they were in late 2002.
The decline in home prices was higher than economists’ expectations and signaled that the housing industry has not yet reached a bottom. A distressed market held prices back, according to analysts. More than 20 percent of all homeowners are underwater on their mortgage.
The drop in home prices came as the Obama administration reached a deal to help homeowners lower their principle and the Federal Housing Finance Agency formulated a plan to sell government-owned foreclosed homes to investors to turn into rentals. If prices remain low, those investors would be getting housing units at very low rates.
All S&P/Case-Shiller home price indices were down. The national sales composite dropped by 4 percent from December 2010.The 10-city and 20-city indices were down by 3.9 percent and 4 percent, respectively, over the same period of time.
Detroit was the only metropolitan area measured that saw home prices increase since last year, while Atlanta home prices were down by almost 13 percent. Las Vegas and Chicago homes lost 8.8 percent and 6.5 percent, respectively, in value.
December home prices increased in only two cities, Miami and Phoenix, compared to November’s prices. Both increases, however, were less than one percent.
Detroit, Miami and Phoenix were three of the hardest hit markets when the housing bubble burst in 2007 – – meaning increases in prices come from a low floor. Home prices in Detroit, for instance, are almost 32 percent lower today than they were in 2000.
“The pick-up in the economy has simply not been strong enough to keep home prices stabilized,” said David Blitzer, Chairman of the Index Committee at S&P indices. “If anything it looks like we might have reentered a period of decline as we begin 2012.”
Scott Brown, an analysis at Raymond James, agreed that Tuesday’s indices were proof positive that the housing market is not convalescing.
“It is bad, in a sense. You’re seeing continued softness,” Brown said. “[Prices] look like they are trending lower.”
Home prices are now almost 34 percent lower than at its peak in the summer of 2006.
The disappointing Case-Shiller report comes on the heels of other positive economic indicators. More than four million homes were sold in January, according the National Association of Realtors, an increase of 4.3 percent from the previous month. The unemployment rate stands at 8.3 percent, the lowest it has been since February 2009.
Improving the housing sector is a priority of the Obama administration. State attorneys general and federal officials reached a $26 billion dollar mortgage relief settlement earlier this month with five banks to aid homeowners.
Moreover, the Federal Housing Finance Agency (FHFA) recently announced the next step in their plan to offer pools of federally owned mortgages to investors so they can turn them into rental properties. Investors looking to buy into the program can now attempt to “pre-qualify”.
The decline in home prices is a boon to those trying to qualify for the FHFA’s plan, according to Richard DeKaser, an economist at Parthenon.
“The FHFA has embarked to offload mortgages to investors to convert them into rental properties. These numbers are a big advantage to those players who are getting in the bottom of the market,” DeKaser said. “Because prices are so severely depressed relative to pricing fundamentals, this will prove to be a good investment.”
