December 28, 2010
NEW YORK — Home prices are dropping in the nation’s largest cities and are expected to keep falling next year, as fewer people purchase homes and millions of foreclosures come on to the market.
The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday fell 1.3 per cent in October from September.
All cities recorded monthly price declines. The last time that happened was in Feb. 2009.
Atlanta recorded the largest decline. Prices there fell 2.9 per cent from a month earlier. Home prices in Washington dropped 0.2 per cent in October, the second monthly decline after five straight increases.
Home prices in Dallas, Portland, Ore., Charlotte, N.C., Tampa, Fla. and Denver have fallen for four straight months.
The 20-city index has risen 4.4 per cent from their April 2009 bottom. But it remains 29.6 per cent below its July 2006 peak.
This year is on pace to finish as the worst for home sales in more than a decade. High unemployment and tight credit have kept people from buying homes, despite some of the lowest mortgage rates in decades.
Government tax credits gave the ailing industry a boost this spring. But they expired in April, and in recent months, home prices have begun to dip again.
Millions of foreclosures are forcing home prices down. Many people are holding off on making purchases because they fear the market hasn’t bottomed out, analysts say.
Foreclosures likely will remain high for the next two years, said Mark Zandi, chief economist at Moody’s Analytics.
Several lenders temporarily halted action after evidence surfaced that some used flawed foreclosure documents to take people’s homes. Some banks have resumed foreclosures at a more measured pace.
Also, the number of homeowners who owe more than their house is worth is expected to remain high. They are more likely to default if they run into trouble, Zandi said. Homeowners who have equity can sell their homes if they face a job loss, divorce, or illness that makes it impossible for them to pay their mortgage.
And more people might be less inclined to buy now that mortgage rates are rising again. In the last month, rates on fixed mortgages have surged more than a half-point to near 5 per cent.
Most experts expect the declines to continue through mid-year with prices on average to lose another 5 per cent to 10 per cent. The worst price drops will come from cities with a struggling economy and the highest foreclosure rates, while those with better job growth will fare better.
Home prices have declined in 18 of the 20 cities in the past year.