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Home » News » Business

Wednesday, March 26, 2008

Home prices plummet at record rate

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Home prices dropped at an unprecedented 23 percent rate in the last three months as buyers demanded deep discounts because of increased difficulty obtaining loans and sellers were forced to unload houses encumbered by debts.

The record price declines reported by Standard & Poor's Corp. yesterday are a root cause of the mortgage and housing crisis, as they have led to escalating foreclosures, burgeoning bank losses and a slide in consumer confidence and spending that imperils the economy.

Washington-area home prices have fallen by close to the national average of 11 percent in the last year, but the declines vary considerably by jurisdiction. In Prince William County, which has been plagued with an elevated rate of foreclosures, the median home price dropped by 25 percent. But prices actually rose 6.4 percent in the District, which continues to be buoyed by the trend toward living closer in, according to the Metropolitan Regional Information Systems.

Nationally, price changes varied substantially as well in the year ended Jan. 31, ranging from a decline of nearly 20 percent in Miami and Las Vegas to a gain of 1.8 percent in Charlotte, N.C. — the only other major city surveyed in the S&P/Case-Shiller index that was still enjoying gains. The price drops have continued for at least five months and picked up speed in the last three months.

For consumers, the bad news about housing has finally sunk in. Rapidly appreciating house prices fed consumer confidence in the early part of the decade. Price declines are now contributing to a major slide in confidence to five-year lows reported by the Conference Board yesterday.

While the drop in home prices is depressing for the majority of Americans who own their homes, it provides a ray of hope to renters who hope to buy their first homes.

"If you lower prices, people will buy," said Roger Smith, a Florida house-hunter who is savoring the big price drops in that state.

He contrasted today's housing market, which is hampered by debt-burdened homeowners and more stringent terms on loans for buyers, with the one between 2000 and 2005 when the easy availability of risky loans enabled people to take on more debt and buy more expensive houses.

"The loans are not out there. This time people are only going to buy what they can afford," Mr. Smith said.

Stephen Stanley, economist with RBS Greenwich Capital, said the drastic price drops in the months leading up to the critical spring home-selling season could be interpreted two different ways.

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