Home Prices Hit Four-Year Low
The S&P/Case-Shiller index reports that in May, home prices plunged to 2004 price levels, wiping out four years of appreciation
July 29 2008 - Home prices in May plummeted 15.8% from a year earlier, to 2004 price levels, wiping away four years of appreciation, according to the S&P/Case-Shiller 20-city home-price index released July 29.
Analysts have become increasingly pessimistic that a bottom to the market will arrive anytime soon. The S&P/Case-Shiller report is only the latest evidence that home prices are swinging backward with at least as much force as they swung the other direction during the boom. Places that had double-digit increases a few years ago are now seeing prices drop by as much as 28% in a year.
Peter Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, said prices could slide to levels last seen before the housing boom began in the early 2000s.
“Demand is way below where it was eight years ago; supply is way above,” Schiff said. “Why should prices be substantially higher than they were in 2000? The Dow isn’t where it was in 2000. Stocks are worth less than they were. Why should real estate stand out as worth more?”
Home Prices Not Dropping Everywhere
All 20 cities in the S&P/Case-Shiller index experienced annual declines in May and prices fell at record year-over-year rates in nine cities. The largest drops were in places being clobbered by foreclosures. Prices were down 28.4% in Las Vegas, 28.3% in Miami, and 26.5% in Phoenix. But several cities saw improvement. Prices in Charlotte, North Carolina, fell just 0.2%; they dropped 3.1% in Dallas and 4.8% in Denver. Prices actually rose 2.9% in Cleveland and 1% in Boston and Charlotte in May, compared to a month earlier.
The index of 20 cities has been falling for 22 straight months, so the latest decline wasn’t much of a surprise. Patrick Newport, a housing economist for Global Insight in Waltham, Massachusetts, said he’s more concerned about the inventory of unsold homes continuing to rise as more and more foreclosed homes come onto the market.
Newport plans to extend by three months his earlier forecast that existing home prices would hit bottom in the middle of next year.
Biggest Booms, Biggest Busts
“If you combine today’s release with the other housing releases, it just tells you that the outlook over the next year is not good,” Newport said.
Jim Gillespie, president and chief executive of Coldwell Banker, a division of privately held real estate giant Realogy, said he is skeptical of the Case-Shiller report because it focuses on specific cities, many of which had runups in the first half of the decade. They are now seeing the biggest drops.
Gillespie said the 15.8% drop in home prices reported by Case-Shiller will unnecessarily scare buyers in much of the heartland where prices are more stable. “Is there a major real estate correction going on? Yes,” Gillespie said. “Are we looking at 16% nationwide? Absolutely not.”
Home Prices Hit Four-Year Low
by Prashant Gopal | BusinessWeek