In Los Angeles, the Case-Shiller index recorded a monthly decline of 1.5%… (Genaro Molina, Los Angeles…)
Home prices in the nation's largest cities fell in October for the second straight month, suggesting that prices will head down further next year and dashing hopes that the sluggish housing market was headed for an upturn.
The Standard & Poor's/Case-Shiller index, a measure closely followed by economists, showed price drops in 19 of 20 cities since September. Overall, the price index slipped 1.2% month over month and fell 3.4% compared with October 2010.
The decline is typical of the season, when home buyers back off after the busy summer period. But coming off five straight months of increases through August, the retreating prices in the fall suggest that weakness in the market may stretch into 2012.
Atlanta was on particularly shaky ground, according to Case-Shiller data. The price index there declined 5% in October after falling 5.9% in September and was down 11.7% over the last 12 months. Atlanta, Cleveland, Detroit and Las Vegas had average prices that were lower than they were in January 2000.
In Los Angeles, the Case-Shiller index recorded a monthly decline of 1.5% in October after sliding 0.8% in September. Year over year, L.A. prices are down 4.9%, as measured by the index.
San Diego fell 0.6% from September and was down 4.5% from October 2010. In San Francisco the pattern was almost the same, with the price index off 0.7% from September and down 4.7% from a year earlier.
"In the October data, the only good news is some improvement in the annual rates of change in home prices," said David M. Blitzer, chairman of the index committee at Standard & Poor's. In 14 of the 20 cities tracked, the rate of the annual decline in home prices slowed.
Home prices appeared to be stabilizing earlier this year, but that may have been an illusion produced by a temporary reduction in foreclosures, economist Patrick Newport of consulting firm IHS Global Insight said in a research note. The foreclosure pipeline was slowed after media reports that some lenders cut corners when processing their foreclosures.
More than 6 million homeowners — 12.6% of the homeowners with mortgages — were either delinquent on their payments or in foreclosure at the end of the third quarter, the Mortgage Bankers Assn. said. About 22% of residential properties with mortgages were underwater at the end of the third quarter, meaning that the homeowners owed more on their loans than the properties were worth, according to CoreLogic data.
"Add to this the currently high unemployment and underemployment rates, one gets a recipe for further price declines," Newport said in a research note. "Our view is that foreclosures, excess supply and weak demand will drive prices down another 5% to 10%."
Should the economy slip into a recession, the unemployment rate will climb, driving foreclosures up and leading to an even larger drop in home prices, Newport said. He rated the chance of another recession a 35% probability.
The Case-Shiller index, created by economists Karl E. Case and Robert J. Shiller, is widely considered the most reliable read on home values. The housing index compares the latest sales of detached houses with previous sales and accounts for factors such as remodeling that might affect a house's sale price over time.
The index also provides seasonally adjusted data. S&P has warned that the adjusted data are unreliable because the high number of distressed properties has distorted the market.
The Case-Shiller data cast a pall on recent, more promising market feedback. Last week, the Commerce Department said construction of new homes and apartments was up 9.3% last month from October and up 20.1% compared with November 2010.
Home sales in California were up 4% in November compared with the same month a year earlier, though they fell 4.2% from October, according to real estate research firm DataQuick. The median home price in the state in November was $244,000, down 4.3% from a year earlier but up 1.7% from October, the report found.