Home Prices in 20 U.S. Cities Fell From Year Ago

By Timothy R. Homan
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Oct. 28 (Bloomberg) -- House prices in 20 U.S. cities declined at the fastest pace on record as foreclosures climbed before the credit crisis deepened this month.

The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, after a 16.3 percent decline in July. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.


The decrease in property values, which helped boost sales last month to the highest level of the year, will probably intensify in coming months as the latest tightening of credit markets threatens to dry up mortgage financing. Prolonged price declines may push even more houses into foreclosure, weakening consumer spending and the economy.

``There's still quite a bit further for prices to go down, even though the volume has probably bottomed out,'' William Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. ``Prices will probably find a bottom sometime next year.''

Stocks rallied after yesterday's declines drove the Standard & Poor's 500 Index to the lowest level since March 2003. The S&P 500 rose 22.2, or 2.6 percent, to 871.2 as of 9:32 a.m. in New York. Treasuries fell, pushing yields higher. The benchmark 10- year note yielded 3.77 percent, up 9 basis points from yesterday.

Home prices decreased 1 percent in August from the prior month after declining 0.9 percent in July, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

As Forecast

The economists forecast for the 20-city index was based on the median of 27 estimates in a Bloomberg News survey. Projections ranged from declines of 15.9 percent to 17.1 percent.

For a fifth consecutive month, all areas showed a decrease in prices in August compared with a year earlier, led by 31 percent declines in Phoenix and Las Vegas.

Just two markets, Cleveland and Boston, showed an increase in property values in August from the prior month, down from six cities in July.

``The downturn in residential real estate prices continued, with very few bright spots in the data,'' David Blitzer, chairman of the index committee at S&P, said in a statement.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

Spurring Demand

Reports this month showed falling prices had spurred demand. New and previously owned houses sold at a combined 5.644 million annual pace in September, the most since November, according to Bloomberg News calculations based on figures from the Commerce Department and National Association of Realtors.

Sales of distressed properties accounted for 35 percent to 40 percent of last month's total, the agents' group also said.

The median price of an existing home fell 9 percent in September from a year earlier, according to the Realtors. The median price of new houses fell 9.1 percent during the same period, Commerce reported yesterday.

Foreclosure filings increased 71 percent in the third quarter from a year earlier, according to Irvine, California- based RealtyTrac, a seller of foreclosure data. A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most since records began in January 2005, RealtyTrac said.

Declining home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy for the next few quarters, economists said.

Homebuilder Ryland Group Inc. reported a wider third-quarter loss last week and said foreclosed properties are driving down the value of homes made by the Calabasas, California-based company.

Chief Executive Officer Chad Dreier said in an Oct. 23 conference call that falling home prices in many parts of the country are preventing potential buyers from selling their houses and purchasing a Ryland home.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net