Home Prices Fall in 24 U.S. Cities as Foreclosures Hurt Market

By Sharon L. Lynch

Oct. 2 (Bloomberg) -- Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier as foreclosures depressed property prices.

Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.

``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''

U.S. foreclosures rose to a record 2.75 percent of all mortgages in the second quarter, according to the Washington- based Mortgage Bankers Association. Foreclosed houses tend to sell at a discount of about 20 percent, according to research by Lehman Brothers Holdings Inc. Those discounts are weighing on prices throughout the country, Radar Logic said.

The U.S. Senate passed a $700 billion financial-market rescue package yesterday loaded with inducements for the House of Representatives to approve the measure. The House rejected an earlier version.

The legislation, approved last night on a 74-25 vote, authorizes the government to buy troubled assets from financial institutions rocked by record home foreclosures. It contains two provisions favored by House Republicans: One raises the limit on federal bank-deposit insurance; the other reiterates the authority of securities regulators to suspend asset-valuing rules that corporate executives blame for fueling the crisis.

`Dramatic Impact'

``As you clear out the discount inventory, it is going to come back,'' Feder said of the housing market. ``The bill that's struggling through Congress could have a dramatic impact.''

U.S. foreclosures have come in three waves, Moody's Economy.com Chief Economist Mark Zandi said in a report this week.

The first hit in early 2006 when investors who bought houses intending to quickly resell them for a profit realized the boom was over and walked away. The second came a year later as owners who used adjustable-rate mortgages to buy in 2005 and 2006 began to see their monthly payments rise. Now, falling home prices combined with rising unemployment have spurred a third round, Zandi said.

The biggest price declines were in the California and southwestern states, Radar Logic said in today's report.

Prices dropped 26.5 percent in San Diego from a year earlier, 24.1 percent in Miami, 17.9 percent in San Jose and 17.4 percent in Tampa, Florida, the report said.

Only Milwaukee saw home prices climb in July, rising 2.9 percent since July 2007. Prices have risen 3.6 percent there in the last two years. The only other city to see an increase in that period was Charlotte, North Carolina, which rose 1.5 percent.

``They didn't have the same boom, and their economy is somewhat more stable,'' Feder said of Wisconsin. ``They are, to some degree, not suffering the bust.''

In the New York metropolitan area, prices fell 7.8 percent in July from a year earlier and in Boston they fell 13.6 percent, Radar Logic said.

The RPX Monthly Housing Market Report, published by Radar Logic, measures home values using price per square foot. The data reflects 28-day aggregated values, the company said.

The prices are the basis for property derivatives traded on the Residential Property Index, which has a volume of $2 billion. The index allows investors to benefit from the movement of metro area home prices without owning land or physical property.

To contact the reporter on this story: Sharon L. Lynch in New York at sllynch@bloomberg.net