From the Wall Street Journal:
Steep Home-Price Drop Stirs Fears
Market May Get Worse Still As Effect of Stricter Lending Has Yet to Show Up in Data
By KELLY EVANS
August 29, 2007; Page A3
The decline in U.S. home prices accelerated in the second quarter as a glut of unsold homes and tighter lending standards continued to weigh on the market.
Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.
Lehman Brothers Holdings Inc. economist Michelle Meyer attributed falling home prices to a “huge imbalance” in the housing market: “There’s a high presence of risky [mortgage] loans and a massive overhang of homes for sale,” she said.
Home prices have been falling for more than a year and economists had widely expected the S&P/Case-Shiller index to reflect that trend. But the size of the latest decline was worrisome in part because it was larger than that of competing home-price indexes. A separate report released Monday by the National Association of Realtors found that the median sales price of existing homes slipped to $228,900 in July, down just 0.6% from a year earlier.
Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation’s mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future.
“These pricing pressures have not been seen in post-World War II history,” said economist Brian Bethune at Global Insight. “It’s very difficult for the markets to be able to deal with that kind of stress.”
Mr. Bethune noted that today’s price declines are worse than those during the housing bust of 1990-91 that preceded a national recession. “The housing market is definitely a leading indicator of a potentially more serious downward moment in the economy,” he said.
BY METRO AREA
The S&P/Case-Shiller Home Price Index includes data on major metropolitan areas. January 2000=100.
|Metro area||June 2007 level||% change from year earlier|