US HOME PRICES FALL FOR THE FIRST TIME SINCE 1991U.S. home prices fall for first time since 1991 By Rex Nutting, MarketWatch Last Update: 12:51 PM ET May 29, 2007
WASHINGTON (MarketWatch) -- U.S. home prices dropped 1.4% in the first quarter compared with a year earlier, the first year-over-year decline in national home prices since 1991, according to the S&P/Case-Shiller index released Tuesday. A year ago, home prices were rising at an 11.5% pace. Prices have been falling for the past three quarters. The Case-Shiller indexes cover three geographical areas. The national index is released quarterly, while the 10-city and 20-city indexes are released each month. The 10-city Case-Shiller price index fell 1.9% year-on-year through March, while the 20-city index dropped 1.4%. The 10-city index has fallen nine months in a row, while the 20-city index has fallen for eight straight months. All three Case-Shiller indexes show continued deterioration in home prices. Prices were falling or rising slower in most U.S. cities. The national decline "is reaffirmation of the pullback in the U.S. residential real estate market," said Robert Shiller, chief economist for MacroMarkets LLC, and co-inventor of the index. "This fall is consistent with the ongoing trend that has developed over the past year," wrote Goldman Sachs economists, who said they believe the Case-Shiller index is the best gauge of home values. "We remain comfortable with our forecast of house prices falling by 5% over 2007." Falling home prices have squeezed many borrowers who have been able to extract equity from their homes or refinance their loan to avoid a sudden increase in mortgage payments as their adjustable-rate loan reset. As a result of falling prices, foreclosures are rising nationally, especially in regions with a weak economy, such as the Midwest, and in the bubble regions of Southern California, Florida, Nevada and Arizona. Thirteen of 20 cities in the Case-Shiller index have seen falling prices in the past year, led by Detroit (down 8.4%) and San Diego (down 6%). Home prices rose 10% in Seattle, 7.4% in Charlotte, N.C., and 7% in Portland, Ore. Prices in Phoenix and Las Vegas, Nev., have fallen the furthest from their peak. After growing at a 49.3% pace in September 2005, home prices in Phoenix are now down 3% year-on-year. In Las Vegas, price gains went from 53.2% in September 2004 to negative 1.6% in March 2007. Among other major cities tracked by the index, home prices are down 4.9% in Boston, down 4.8% in Washington, down 3% in Tampa, Fla., down 2.4% in Cleveland, and down 2.3% in San Francisco. Prices fell 2% in Denver, 1.9% in Minneapolis, 1.4% in Los Angeles and 1.1% in New York. In addition to the price gains in Seattle, Charlotte and Portland, prices rose 2% in Atlanta, 1.6% in Dallas, 1.3% in Chicago and 1% in Miami. The Case-Shiller index is considered a superior gauge of home prices compared to the median sales-price data released by the Commerce Department or National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period. Unlike the price index produced by the Office of Federal Housing Enterprise Oversight, the Case-Shiller index does not include refinancings. And, also unlike the OFHEO index, it includes homes with mortgages larger than the conforming limit of $417,000. The OFHEO index for the first quarter will be released on Thursday. Through the fourth quarter, home price gains had slowed to 5.9% year-on-year from 13.3% a year earlier. The OFHEO purchase-only index (which excludes refinancings) had risen 4.1% year-over-year. Lehman Bros. economists said their forecast for a 0.5% gain in the first-quarter OFHEO price index remains on track. That would put the year-over-year gain at 4%. Rex Nutting is Washington bureau chief of MarketWatch.