US house prices in freefall

Crikey | Glenn Dyer | 30 April 2008

That great sucking sound you may be hearing is the sound of the US economy and Wall Street tumbling further into the black hole known as the housing slump.

News of the accelerating slide in US housing prices is contained in the latest Standard & Poor's/Case Schiller index.

The index of single-family shows house prices contracted by 13.6% year-on-year in February, the biggest since records began in 1987. That compares to an annual rate for the 10 city index of 11.4% in January.

The broader 20-city index fell 12.7% compared with the year to February, 2007, the biggest drop since the index’s inception in 2001. This index was falling at an annual rate of 10.7% in January, so there has been a significant acceleration in price falls.

It shows that despite confidence that the worst is over with the credit crunch and high expectations for a rebound in the economy later this year; the depression in the American housing market is intensifying, not easing.

It’s no longer a subprime problem, analysts at Barclays investment bank reckon around $US800 billion of debt linked to subprime and higher quality so-called Alt-A mortgages could become problematic this year, putting further pressure on housing prices and mortgage values.

In fact US house prices have now fallen by more over the past year than the US stockmarket: the Standard & Poor's 500, the major index is off around 8% since its peak late last year. US economists say house prices are now falling faster than anyone had previously thought possible and are acting like equity prices in the speed of the decline.


Monthly price declines have accelerated, with repeat sale prices in the 20-city index falling by 2.6% in February, 2.4% in January and 2.1% in December.

It makes unpleasant reading and will worry the members of the US federal reserve board which is meeting in Washington for two days and is expected to produce another interest rate cut early tomorrow, Australian time.

The news will also undermine whatever reading the US Commerce Department issues for first quarter economic growth in the US: the housing slump is getting worse, not slowing.

The worst affected cities are Las Vegas and Miami where home values have respectively fallen 22.8% and 21.7% in the year to February. In San Francisco house prices fell 5% alone between January and February.

Senior S&P executive, David Blitzer said in a statement “There is no sign of a bottom in the numbers.”

"Prices of single family homes continue to drop across the nation. All 20 metro areas were in the red for the February-over-January reading. In addition, 19 of the 20 MSAs are still reporting negative annual returns. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months. On top of that, the declines have with eight of the 20 MSAs and both composites reporting their single largest monthly decline in February."

Robert Shiller, economist and co-founder of the housing index, warned last week that the severity of the decline in residential property values threatened to exceed that of the Great Depression, when house prices dropped 30%. Since its peak in June 2006, the 20-city house price index has already fallen 14.8%.

According to an estimate from Moody's Economy.com almost 9 million US homeowners have negative equity in their homes; meaning they owe the lender more than their house is worth.

Foreclosure filings in the first three months of 2008 rose more than 112% over last year, according to a study released Tuesday.

Meanwhile RealtyTrac reported that nearly 650,000 foreclosure filings were issued in the US in the three months to March, up 23% from the last three months of 2007.

RealtyTrac said foreclosures rose in 46 states and in 90 of the nation's 100 largest metro areas. There were reports of a small improvement in Detroit and parts of Pennsylvania.

The worst hit states are still in the Southwest; Nevada, California and Arizona.