Prospects dim for quick home-price recovery
Investors appear to be betting against any rapid rebound in home prices.
NEW YORK (CNNMoney.com) -- Home prices fell over the last 12 months for the first time in 16 years, according to a survey released Tuesday, and investors seem to believe that prospects for a quick recovery are poor.
The S&P/Case-Shiller national home price index revealed that in 13 of 20 metro areas surveyed, home prices fell an average of 1.4 percent in the 12 months ended March 31, with half of that decline, 0.7 percent, coming in the first quarter.
The national index sank over a 12-month period for only the second time in its history and the first time since 1991. The drop is in stark contrast to a year ago, when home prices jumped 11.5 percent over the prior 12 months, according to the index.
Investors seem to believe the downturn will continue. The Chicago Mercantile Exchange trades contracts based on the Case-Shiller indexes that enable investors to bet on future housing price trends.
This product is fairly new with trading started about a year ago and is thinly traded. It also tilts a bit negatively because more traders seem to be using it as a hedge against falling home prices than as an investment.
Still, the futures trading has been reasonably accurate in predicting price changes (they've been down all year) and the latest trading reveals that investors are betting prices will continue to decline. The 10-city futures average has prices falling 3.9 percent in the 12 months through February 2008.
The Case-Shiller numbers, long considered the most accurate for gauging the direction and strength of housing prices, are based on prices compiled by the Office of Federal Housing Enterprise Oversight (OFHEO) and compare sales and mortgage refinancings for the same homes.
Among the 20 cities surveyed, Detroit took the biggest hit, with prices sliding 8.4 percent over the past 12 months. Michigan's economy has suffered from decades of cuts in domestic automobile manufacturing, and taken another hit from the recent spike in gas prices.
The second worst performer, San Diego, where prices fell 6.0 percent, was a bit more of a surprise; that California market has many things going for it, such as job growth, a growing population and little dependence on old, rust-belt industries.
Phoenix and Las Vegas experienced the steepest reversals of fortune from extremely hot to very cool. Prices in Phoenix were growing at a 49.3 percent annual rate in September 2005 while Las Vegas prices were soaring at a 53.2 percent rate in September 2004. But prices fell 3.0 percent and 1.6 percent in the latest 12 months, respectively.
But prices in San Diego, as in many California cities, had risen so quickly and reached so high a level (the median price in San Diego topped out above $600,000 last year) that the run-up became unsustainable. Prices had exceeded affordability for the average resident there.
A few cities bucked the trend. Seattle prices have grown 10 percent over the past 12 months, although the lion's share of that growth occurred earlier last year. But prices rose just 0.5 percent in the first quarter compared with the fourth quarter.
Other cities showing year-over-year increases were Charlotte (7.4 percent, but down 0.1 percent quarter-to-quarter), Portland, Oregon (7.0 percent and up just 0.1 percent quarterly) and Chicago (1.3 percent and flat quarterly).
The Case-Shiller news came on the heels of other negative numbers for housing in the past week. On Friday, the National Association of Realtors, reported that the pace of existing home sales fell to a four-year low in April.
A Thursday report from the Commerce Department showed a big jump in the pace of sales of new homes but that rise was driven by huge price discounts; the median price of a new home had dropped 11 percent compared with a year earlier.