Price of single-family homes drops for sixth straight month

By Renae Merle
Washington Post Staff Writer
Wednesday, May 26, 2010

Home prices remained weak through the early months of this year, according to a closely watched housing index released Tuesday, an indication that the housing market continues to struggle despite recent improvements.

The Standard & Poor's/Case-Shiller home price index showed that prices of single-family homes were down 0.5 percent between February and March, the sixth consecutive month-over-month decline. On a seasonally adjusted basis, prices were flat, according to the index.

Prices in 13 of the 20 cities tracked by the index fell in March, including the Washington region, where prices were down 0.7 percent. Detroit and Minneapolis saw the largest price declines, 4.1 percent and 2.7 percent, respectively.

The housing market is in a tentative recovery. Sales of previously owned homes jumped nearly 8 percent in April compared with the previous month, for example. And there was some positive news in the Case-Shiller data: Prices were up about 2.3 percent compared with the same period last year.

"The housing market may be in better shape than this time last year; but when you look at recent trends, there are signs of some renewed weakening in home prices," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in statement.

The recent weakness in prices is disappointing given record-low mortgage rates and a home buyer tax credit that helped boost sales through the first few months of this year, analysts said. The tax credit expired last month, and home sales are expected to decline in its absence.

"We haven't turned the corner on home prices," said Steven Ricchiuto, chief economist for Mizuho Securities in New York.

The Case-Shiller index measures repeat sales of homes and reflects a rolling three-month average, so the March data also captured transactions that closed in February and January.

There is still an oversupply of homes on the market, particularly foreclosures, said Patrick Newport, U.S. economist for IHS Global Insight. Foreclosed properties typically sell at a discount, bringing down neighboring home values.

The "housing glut and foreclosures" will drive the Case-Shiller index down another 6 to 8 percent before reaching bottom in 2011, Newport said. "Prices appeared to stabilize late last year, and they are now starting to edge down again," he said. "With the tax credit gone, sales are going to drop, and we're going to see that trend continue."

Another index tracking price changes in homes with loans backed by Fannie Mae or Freddie Mac provided a mixed picture. Prices of homes sold in March were up slightly, 0.3 percent, compared with February, according to data released by the Federal Housing Finance Agency, which regulates the mortgage-finance companies. But that increase was offset by a 1.9 percent decline in prices during the first quarter compared with the previous quarter and a 3 percent decline compared with the first quarter of 2009.

While prices fell in most cities tracked by the FHFA index, the Washington region saw a significant improvement. Of the 25 largest metro areas, home prices increased the most, nearly 12 percent, in the Washington region in the first quarter compared with the first quarter of 2009.

Overall, home prices are likely to gradually fall an additional 5 percent through the end of 2011, said Paul Dales, an economist at Capital Economics. "I don't think we're going to get anything like the crash [in prices] we had before," he said. "It won't be a disaster, but it will undermine the wider economic recovery."

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