- The Washington Times - Wednesday, December 31, 2008

Home prices plunged at a record rate in October, reaching their lowest levels in 4 1/2 years, a closely monitored housing report revealed Tuesday.

With home foreclosures and layoffs continuing to rise and consumer confidence plummeting to a record low in December, housing prices are not likely to hit bottom anytime soon, analysts say.

Home prices in the Washington metropolitan area declined 2.7 percent in October, the largest monthly decrease on record. Compared with October 2007, Washington-area prices were 18.7 percent lower, according to the Standard & Poor’s/Case-Shiller Home Price Indices.

House prices in the Washington region have fallen 26.3 percent since they peaked in May 2006. However, they are still 85 percent above their January 2000 level.

In recent years, U.S. housing prices have fallen the most since the Great Depression.

Fourteen of 20 metropolitan areas tracked by the S&P;/Case-Shiller indexes showed record rates of annual declines in October. The 20-city composite index plunged a record 18 percent compared with October 2007. A 10-city composite index was down 19.1 percent from a year earlier, another record. Moreover, 14 of the 20 regions suffered price declines of more than 10 percent during the latest 12 months.

Adjusted for inflation, housing prices fell even more because the consumer price index was rising 3.7 percent during the 12-month period ending in October, noted Patrick Newport, U.S. economist for IHS Global Insight.

“The bear market continues. Home prices are back to their March 2004 levels,” said David M. Blitzer, chairman of the Index Committee at Standard & Poor’s.

As of October 2008, the 10-city composite index is down 25 percent from its June 2006 peak, and the 20-city composite has declined 23.4 percent, Mr. Blitzer said.

Three new markets — Atlanta, Seattle and Portland, Ore. — entered the “double-digit club,” as home prices in those metropolitan areas fell more than 10 percent over a 12-month period for the first time. During the past year, three metro areas have experienced home-price declines of more the 30 percent: Phoenix (32.7 percent), Las Vegas (31.7 percent) and San Francisco (31 percent).

Dallas and Charlotte recorded the smallest year-over-year price declines of 3 percent and 4.4 percent, respectively.

October marked the seventh consecutive month during which year-over-year home prices declined in all 20 markets.

“The drop in prices is likely to accelerate over the next few months because housing demand has plunged since Lehman Brothers’ bankruptcy” in mid-September, when “financial markets fell into disarray,” Mr. Newport said.

The plunge in consumer confidence hasn’t helped either. The Conference Board, a private research group, reported Tuesday that its consumer confidence index plunged in December to its lowest level since the organization began commissioning consumer surveys in 1967. With the unemployment rate at a relatively modest 6.7 percent in November, consumer confidence in December managed to fall below the level recorded at the depth of the 1981-82 recession, when unemployment peaked at 10.8 percent.

Foreclosures are the main force driving house prices down, Mr. Newport said.

The Mortgage Bankers Association reported in early December that the share of mortgages delinquent by at least 30 days and the share of homes in foreclosure had reached record levels in the third quarter.

In November, when the sale of previously owned homes plunged by 8.6 percent from October and the median home price was down a record 13 percent from a year ago, foreclosures and short sales (homes sold for an amount below the mortgage balance) accounted for 45 percent of November home sales, the National Association of Realtors reported recently.

Meanwhile, loan-modification strategies attempting to limit the number of “preventable foreclosures” are failing, Mr. Newport observed.

“Of the 73,000 loans modified in the first quarter that [the Office of the Comptroller of the Currency and the Office of Thrift Supervision] tracked, about a quarter of modified loans were delinquent after one month; and 60 percent were delinquent after eight months,” Mr. Newport said. “Loans modified in the second quarter were souring at an even higher rate.”

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