Home Prices, Consumer Sentiment Slide

March 25, 2008 - Home prices across the country continued to fall in January 2008 at record rates while consumer confidence reached a five-year low, sending shares down in early Tuesday trading.

The value of single-family homes plummeted 10.7 percent in January compared with a year earlier, as measured by the Case-Shiller index, a closely watched survey of 20 major metropolitan regions.

It was the steepest year-over-year decline since the index began eight years ago, and economists said the slump was probably worse than at the height of the last housing recession in the early 1990s.

Stocks on Wall Street fell modestly in early trading. The Standard & Poor’s 500-stock index, which had been slightly higher, dipped 0.3 percent and the Dow Jones industrials were off 43 points at 11:35 a.m.

The housing price decline may help to lure buyers back into the beleaguered market, where sellers are struggling under a wave of foreclosures and a tight credit market that has made it more difficult for many Americans to take out mortgages. Inventories have ballooned as purchases have dried up, as buyers hold out for prices to fall even further.

The decline in housing prices has been compounded by a general sense of gloom about the economy. Confidence among consumers unexpectedly fell this month to 64.5 from 76.4 in February, as measured by an index created by the Conference Board, a private research group. A value of 100 represents confidence in 1985.

A quarter of those surveyed believe businesses conditions will worsen in the next six months, and nearly a third said the economy would have fewer jobs. Fewer consumers plan to purchase big-ticket items like refrigerators and television sets, and more than half said that employment was currently “not so plentiful.”

Tuesday’s declines on Wall Street follow a major market rally on Monday that was helped in part by a rare bit of positive news from the housing industry. Sales of previously owned homes ticked up last month, according to the National Association of Realtors, ending a six-month streak of declines.

The positive sales figure led some analysts to suggest that the housing market is approaching its bottom. But many economists predict that prices will fall for several more months before sales pick up in earnest.

“It’s a necessary thing,” said Joshua Shapiro, the chief United States economist at MFR, a New York economic research firm. “It’s like the mess going down in financial markets. You gotta get through it. The sooner you get through it you can look for better times.”

All 20 regions included in Tuesday’s Case-Shiller survey recorded price declines, with Las Vegas, Phoenix, and Los Angeles suffering the worst losses in January.

In the New York metropolitan area, home values fell just 0.9 percent in January, and 5.8 percent compared with a year earlier. But the drop-off appeared to be gaining speed: values are down nearly 10 percent on a three-month annualized basis.

Home Prices and Consumer Sentiment Slide
By MICHAEL M. GRYNBAUM | New York Times