House prices hit post-bubble low

Since the depths of the recession, key aspects of the economy have rebounded. The nation’s output has grown. The stock market began an ascent. The unemployment rate drifted down.

But housing?

When it comes to the value of what many Americans consider their biggest financial asset, no such return appears in sight.

Data released Tuesday showed that seasonally adjusted housing prices have reached a post-bubble low, as the minor surge that began in 2009 fizzled, to be followed by the almost continuous slide of the past 18 months.

The housing bust, in other words, appears to be even worse than it was at the nadir of the recession.

For millions of homeowners, that’s an unsettling reality, and potentially an issue in the presidential campaign. But the damage may be far more widespread.

By making people feel less wealthy, according to economists, the decline in home values inhibits consumer spending and hampers the nation’s stop-and-start economic recovery.

“The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand,” said David M. Blitzer of S&P Indices. “I spent the weekend scratching my head and saying, ‘Isn’t there some good number in here?’ ”

The Standard & Poor’s Case-Shiller seasonally adjusted housing index for 20 cities dropped again in ­November, the last month for which data were available, falling to a level not seen since 2003.

In the Washington region, seasonally adjusted prices have been relatively flat since April 2010, according to the index, but they remain about 27 percent below their peak.

Of the 20 cities in the index, only three — Denver, Minneapolis and Phoenix — showed improvement from the month before.

“Looking forward, continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery,” according to a Federal Reserve white paper issued in January.

The dip in home prices stems from an excess of supply, which has been made worse by foreclosures and tighter mortgage-lending standards, according to analysts at the Fed and elsewhere.

The depth and extended duration of the housing slide — it has been six years since national housing prices peaked — are astounding, even to many economists who have watched it closely.

“Housing starts have been at 60-year lows for 38 months — it’s incredible,” said Karl E. Case, emeritus professor of economics at Wellesley College and co-founder of the housing price index. “It’s a complete depression.”

Case noted, for example, the slump’s profound effect on the residential construction industry: Annual housing starts in the United States peaked at 2.37 million and have fallen to fewer than 700,000.

“Eighty percent of a major industry in the United States just disappeared,” he said.

More generally, economists differ on exactly how much the fall in housing prices has retarded the U.S. economy.

But in a paper last year, Case and colleagues John M. Quigley and Robert J. Shiller found that housing wealth has a “rather large effect” on how much households consume.

It is this lack of demand in the economy that has been one of the persistent problems in the U.S. recovery, according to economists. Consumer spending accounts for more than two-thirds of the U.S. economy.

The recent white paper from the Fed noted, for example, that housing prices have fallen an average of about 33 percent from their peak, erasing $7 trillion in household wealth. With that, according to the paper, comes a “ratcheting down” of what people buy.

Peter Whoriskey is a staff writer for The Washington Post handling investigations of financial and economic topics. You can email him at peter.whoriskey@washpost.com.
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