Case-Shiller Home Prices Fell 4.4 Percent in August 2007

Home prices in 20 U.S. metropolitan areas slumped in August by the most in at least six years, a private survey showed today.

Values dropped 4.4 percent in the 12 months that ended August, an eighth consecutive decline, according to the S&P/Case-Shiller home-price index, which has data back to 2001.

The figures reinforce the view among Federal Reserve officials and Treasury Secretary Henry Paulson that the housing slump has further to go. Near-record inventory levels suggest sellers will continue to lower prices, posing a threat to consumer spending because homeowners will have less equity to borrow against.

“This is really the No. 1 risk: a sustained, sharp decrease in home prices really squeezing consumers,” said Meny Grauman, an economist at Scotia Capital Inc. in Toronto.

Economists forecast the gauge would decrease 4.2 percent, according to the median of 11 estimates in a Bloomberg News survey.

The group’s 10-city composite index, which has a longer history, dropped 5 percent in the 12 months ended in August, the most since June 1991.

Compared with July, home prices in the 20-city index fell 0.7 percent after a 0.4 percent decline the month before. The figures aren’t seasonally adjusted, so economists prefer to focus on the year-over-year change.

‘No Positive News’

“The fall in home prices is showing no real signs of a slowdown or turnaround,” said Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, in a statement. “There is really no positive news in today’s report.”

Shiller and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

The index is a composite of transactions in 20 metropolitan regions. Fifteen cities showed a year-over-year decline in prices, led by a 10 percent drop in Tampa, Florida, and a 9 percent decline in Detroit. The area showing the biggest gain was Seattle with a 5.7 percent increase.

Most economists expect housing to extend its slump and continue to be a drag on economic growth as loan foreclosures rise and tougher lending standards make borrowing more difficult.

Fed Forecast

Traders and economists expect the Federal Reserve to cut its benchmark overnight lending rate between banks tomorrow by at least a quarter point. Policy makers on September 18 reduced the interest rate for the first time in four years, to 4.75 percent from 5.25 percent.

Paulson said today it’s too soon to call an end to the housing slump.

“We haven’t hit the bottom yet in housing,” Paulson said at a conference in New Delhi. Still, he added “there is enough strength in the economy that we can grow through this.”

Homeownership in the U.S. has dropped the last four quarters, the longest string of declines since at least 1981, the Census Bureau said on October 26. Also last quarter, a record 17.9 million U.S. homes were vacant.

Sales of existing homes dropped last month to the lowest level since record-keeping began in 1999. The decline to a sales pace of 5.04 million annual rate brought the inventory of homes for sale to a record high of 10.5 months’ supply. The median price of resales fell 4.2 percent from a year earlier.

Price Differences

The price measure from the Realtors group can be influenced by changes in the types of homes sold. Because the S&P/Case- Shiller index and another gauge by the Office of Federal Housing Enterprise Oversight track the same home over time, economists say these more accurately reflect price trends.

Recent price cuts may not be enough to bring in some buyers. Pulte Homes Inc., the third-largest U.S. homebuilder said October 25 that the reductions it’s enacted didn’t boost sales last quarter.

“Time has proven that no one can be sure when this particular downturn will end or begin to show signs of stabilization,” Chief Executive Officer Richard Dugas said on a conference call. “Since we are not sure how long this environment will stay this bad, Pulte plans to be prepared for the worst.”

Pulte will limit price reductions and incentives in the future mainly to developments where it has a heavy inventory of unsold homes, Dugas said.

S&P/Case-Shiller Home Prices Fell 4.4% in August
By Courtney Schlisserman | Bloomberg News