According to S&P’s Case-Shiller Home Price index US home prices dropped 1.3% from October to November, continuing a several month decline in home prices. The low numbers can be attributed to the colder months setting in. Sales on homes do not move as quickly in the winter as they do in the summer, and often sellers are willing to sell for less rather than have the house sit on the market for an extended period of time. However, the yearly report shows the decline is more of a long term problem. Home prices have been steadily decreasing, and fell 3.7% between November 2010 and November 2011.
S&P’s Case-Shiller Home Price index is a monthly report indicating the direction of home prices on a month-to-month and year-to-year basis. The composite of 10 and 20 cities shows the value change relative to preceding months and years. There is a two month lag to reporting, so the numbers released in January 2012 are reporting November 2011. The index shows the values of single family homes that are offered for resale, and the latest report indicates yet another decline in home values.
David M. Blitzer, chairman of the index committee at S&P indices says, “Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall.” Out of the 20 cities surveyed only 2 reported positive growth (Detroit and Washington DC). The rest reported some sort of decline in prices with Atlanta reporting the largest declination of -11.8% for 2010 to 2011. Home prices have recovered since the worst part of the recession, but are back into a temporary decline indicating that the US economy is still very much in recovery mode.
Like many of the similar reports, negative numbers have a big impact on investor sentiment. All areas of the economy are linked to each other, and when existing home prices fall, the price for new homes fall as well. This means builders are less likely to take on new projects, leading to fewer jobs. But existing home prices not only affects the sales, it also affects those who have no intention of selling their home. Those looking to obtain a home equity loan may not be able to due to the fact that their house is not worth as much as it used to be worth, and those looking to refinance may not be able to do so. Dropping home prices can also lead to more mortgages that are underwater, and cause more foreclosures (if your home is underwater, you do have options through the Making Homes Affordable Act such as Principal Reduction).
There is a silver lining to the negative report. Dropping home prices means that for those who are in the market to buy a new (or new to them) house can get a much better deal. With interest rates at near record lows (Primerates.com collects mortgage data and releases a summary each week for major metropolitan areas around the country), and low home prices, buyers are in a great position to pick up real estate for cheaper than ever.
Overall the economy is still slowly gaining momentum. The housing index is still taking the slow road to recovery, and a good portion of the recovery is based on how many homes are being built, sold, and how much they are going for. The latest reports of the Case Shiller Index confirm that the ride out of the recession is a bumpy one, but the overall trend of the economy is still positive.