A sign advertises a price cut in Seattle, one of 11 cities in the Standard… (Elaine Thompson, Associated…)
With foreclosures high and demand weak, home prices in a majority of the nation's largest metropolitan areas posted fresh lows in December and pushed a widely watched index of real estate values close to a double-dip decline.
The Standard & Poor's/Case-Shiller index showed that prices in 20 major U.S. cities dropped an average of 2.4% in December from the same month a year earlier and 1% from November, the fifth straight month the index has fallen.
And experts said things could get worse.
"My intuition rates the probability of another 15%, 20%, even 25% real home price decline as substantial," said Yale University economics professor Robert Shiller, co-creator of the index. "That is not a forecast, but it is a substantial risk."
His partner, Karl E. Case, a Wellesley College economics professor, noted that the nation also could see a quick turnaround.
"It looks very much like a rocky bottom with a downward trend [now], so it is discouraging," Case said. "It's possible the mood could change, and the mood could change very quickly."
The dismal news comes on the heels of rising gas prices as political unrest in Libya and other oil producing nations has shaken investors. The Dow Jones index of 30 blue-chip stocks lost 178 points, or 1.4%, on Tuesday.
The Case-Shiller index showed that 11 cities posted new lows since home prices peaked. Those cities were Atlanta; Chicago; Detroit; Las Vegas; Miami; New York; Phoenix; Seattle; Charlotte, N.C.; Portland, Ore., and Tampa, Fla.
California cities held up better than other regions that experienced big price increases during the boom — Las Vegas, Miami, Phoenix and Tampa — but still showed signs of weakening. Los Angeles was down 1.3% from November, San Diego fell 0.7% and San Francisco dropped 1%.
The index does not include parts of California, such as the hard-hit Inland Empire or California's Central Valley, where more homes than needed were built, where foreclosures remain a dominant part of the market and where the economy is considerably worse off.
A recovery in housing prices seemed to be on track last year. But that improvement was fueled by federal home-buying tax credits that expired last summer, analysts said.
Without a stimulus, prices began to fall again. Also weighing on the real estate market is the stubbornly high 9% unemployment rate and the millions of Americans still at risk of foreclosure, economists said.
Dean Baker, co-director of the Center for Economic and Policy Research in Washington, said prices would have continued to fall two years ago were it not for the tax credit.
"Now that the tax credit is gone, there is nothing to prevent that further deflation," Baker said. "You have massive oversupply" thanks to overbuilding in boom times and the current glut of foreclosed homes.
The median price for homes was at its latest low of $164,600 nationwide last February, according to the National Assn. of Realtors. With the tax credit boosting sales, the price reached $183,000 last June.
But since the credit expired, the median price — the point where half the homes sold for more and half for less — has fallen, and sunk to $168,800 in December, according to the group.
The Case-Shiller index, widely considered the most reliable read on home prices, 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. It does not report prices by giving a dollar figure.
The index is now 31% below the peak in July 2006 and only 2.3% above the index's recent bottom in April 2009. If it drops below that level, S&P/Case-Shiller would consider it a double dip.
Standard & Poor's also released its U.S. national home price index on Tuesday, a broader measure of national home prices released quarterly. That index fell 3.9% in the fourth quarter, compared with the previous quarter, and 4.1% from the fourth quarter of 2009.
Low mortgage rates and the new supply of more affordable housing would not prevent prices from falling further this year, said Paul Dales, senior economist at consulting firm Capital Economics. He predicted prices would fall 5%.
"If a vicious circle of falling prices and rising foreclosures were to develop, prices would fall much further," Dales said.
Mark Zandi, chief economist for Moody's Economy.com, predicted that home prices would hit a new low as foreclosures take up a bigger share of the market but should start improving by 2012.
"I suspect this time next year home prices will be rising again," Zandi said.
Glenn Kelman, chief executive of online brokerage Redfin, was more optimistic, saying the spring buying season will be stronger than expected. Kelman said Redfin is seeing increases in visitors at open houses, customers and the number of written offers and deals under contract.
"Almost everything is fairly strong," he said.