Drop in home prices raises fear of double dip

March 29, 2011

Home prices dropped in nearly all major housing markets in the country in January, according to price index numbers released Tuesday. Analysts said the decrease might be a harbinger of a double-dip recession in the housing market.

According to the S&P/Case-Shiller home price index, only two markets in its survey of 20 cities bucked the trend and posted year-over-year price gains: Washington and San Diego.

The Washington area recorded 3.6 percent annual growth for prices in January. San Diego, the only other metro area to register an annual increase, saw a gain of just 0.1 percent. The Washington area was the only one where prices rose from the month before, with a scant 0.1 percent gain.

The S&P/Case-Shiller 20-city composite index fell 3.1 percent from its January 2010 level. The 10-city index declined 2 percent.

Maureen Maitland, vice president of S&P Indices, said the Washington area’s relative strength derives in part from a lack of inventory glut. “Washington’s land mass for new construction is pretty low, and it attracts new jobs,” she said. She noted, however, that the area’s housing market weakened along with the rest of the country’s in the latter half of 2010 after a federal tax credit for home buying expired.

Stephen Fuller, director of George Mason University’s Center for Regional Analysis, attributed the Washington area’s performance to strong job growth among private and government employers. The metro area had 74,600 more jobs in February than it did a year earlier, he said, and only 8,000 of them were in government. The retail, hospitality, health and education, and professional and business services sectors recorded job gains, he said. “Even construction was up by 5,000 jobs.”

“People have been moving here,” Fuller said. “That’s why we have a 3 percent vacancy rate for rentals compared to 6 percent nationally.”

Nationally, economists are predicting that home prices will keep dropping. In a statement accompanying the index report, David M. Blitzer, chairman of the S&P Index Committee, said: “The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs. At worst, the feared double-dip recession may be materializing.”

S&P says a double dip would occur if its 20-city and 10-city indexes fell below their April 2009 lows. The S&P 20-city index is 2.8 percent above that low; the 20-city index is 1.1 percent above it.

Patrick Newport, an economist with IHS Global Insight, said normal seasonal factors probably account for nearly half of the decline in S&P’s index for December and January .

“I don’t think the numbers were that ugly,” he said. “Prices are slowly coming near bottom. They’re not in a free-fall like they were in 2009.” Using his estimates, he expects housing prices nationally to decline an additional 5 percent and hit bottom — a double dip — in the second half of this year.

Adrian Hunnings, principal broker with Palladian One in the District and president of the Greater Capital Area Association of Realtors, said it’s too soon to tell how this spring’s housing market compares with last year.

“This year we’re not seeing the new inventory come on too rapidly,” he said. The pattern is more like that of the pre-boom years, he said, with March and April seeing the most new listings, and April and May probably registering the most sales.

“There is some shadow inventory of foreclosures that we haven’t seen yet,” he noted. So far, he said, the area has been able to absorb foreclosures as they come on the market. But it’s unclear how many foreclosures built up while legal and procedural questions about the foreclosure process were being addressed in the fall. “It’s a factor to watch,” Hunnings said.

He questions what will happen to Washington-area sales if the government lowers the jumbo- loan threshold from $729,750, as is expected later this year. The increase would raise interest rates for buyers of high-end homes by probably three-quarters of a percentage point, and more buyers could be required to increase down payments to 20 percent. The $729,750 threshold for jumbos “certainly has helped us sustain our real estate market,” he said.

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