Home Prices Declining But At Moderating Pace in October According to S&P Case Shiller Home Price Indices

The rate of decline has declined, but it has still declined. Or, put another way, housing prices are still declining on a year-to-year basis, but that rate of decline has slowed.

Data through October 2009, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, a measure of U.S. home prices, show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately nine months of improved readings in these statistics, beginning in early 2009.

The annual returns of the 10-City and 20-City Composite Home Price Indices, declining 6.4% and 7.3%, respectively, in October compared to the same month last year. All 20 metro areas and both Composites showed an improvement in the annual rates of decline with October’s readings compared to September.

“The turn-around in home prices seen in the Spring and Summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

“Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale. At the same time, housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010."

I'm still on the negative side. The housing market faces some pretty strong headwinds for the foreseeable future. Mortgage rates are going up and the 30-year mortgage rate just crossed the 5% mark for the first time since early October. We'll see how that impacts home sales and prices. In addition, the Federal Housing Administration, which has helped to subsidize the housing market via low down-payment loans is running out of money. Once the government eliminates the homebuyer tax-credit it will also be interesting to see how real estate sales fare.

I don't think prices are going to plunge from this point, but I also don't think homebuyers and owners should expect a sharp bounceback to pre-recession levels. The days of get rich quick from buying a house are over.

Some areas are rebounding nicely. San Francisco has reported seven consecutive months of positive returns, San Diego has reported six and Los Angeles and Phoenix are close behind with five. While the two Composites were flat, seven of the MSAs reported positive monthly returns for October and two of those -- Phoenix and San Francisco -- were greater than +1.0%. Looking at the annual statistics, both Minneapolis and Portland are no longer reporting double-digit declines. Denver and Dallas are nearing positive territory with their annual figures at -0.1% and -0.6%, respectively.

Las Vegas remains the one market that has not seen a glimmer of hope so far this year. Prices have declined for 38 consecutive months, with a peak-to-trough reading of -55.4%. It is now barely 5% above its January 2000 level. This compares to its peak in August 2006, when the average home price was 135% above that same level.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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