U.S. Property Values Decline More Than Forecast in S&P/Case Shiller Index

Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year.

The S&P/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed by Bloomberg News.

A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011, representing a risk to household finances. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, reasons why they reiterated a plan to expand record monetary stimulus.

“We’ll remain in negative territory for several more months,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who forecast a year-on-year drop of 1.3 percent. “The housing market does remain weak and none of the recent data suggest a substantial pickup.”

After retreating briefly, stock-index futures remained higher after the report as a jump in holiday sales boosted the outlook for consumer spending. The contract on the Standard & Poor’s 500 Index maturing in March rose 0.2 percent to 1,255.5 at 9:23 a.m. in New York. The yield on the benchmark 10-year note rose to 3.36 percent from 3.33 percent late yesterday.

Survey Results

The median forecast was based on projections of 17 economists surveyed. Estimates ranged from an increase of 1.4 percent to a decline of 1.3 percent. Year-over-year records began in 2001. Prices rose 0.4 percent in the year ended September.

The gauge fell 1 percent in October from the prior month after adjusting for seasonal variations, matching September’s drop which was larger than previously estimated. Unadjusted prices decreased 1.3 percent from the prior month.

Eighteen of 20 cities showed a decrease in prices in October, led by a 2.1 percent drop in Atlanta, and decreases of 1.8 percent in Chicago and Minneapolis. Denver and Washington were the only two that posted gains.

Six markets, including Atlanta, Charlotte, Miami, Seattle, Tampa and Portland, Oregon, reached their lowest levels in October since prices started to retreat.

“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.”

Since 2006

The 20-city index was down 30 percent in October from its July 2006 peak.

The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

The Case-Shiller gauge is based on a three-month average, which means the October data was influenced by transactions in September and August.

The drop in prices represents a setback for housing after values recovered earlier this year, thanks to an $8,000 homebuyers’ tax credit that lifted purchases.

Reports earlier this month showed the housing market is stuck near recession levels even as the broader economy is recovering. Housing permits fell in November to the third-lowest level on record, while starts rose for the first time in three months, the Commerce Department reported Dec. 16.

Sales of new and existing homes last month rose less than projected by the median forecast of economists surveyed by Bloomberg, reports from the Commerce Department and the National Association of Realtors showed last week.

Price Outlook

Atlanta-based Beazer Homes USA Inc, which builds and sells single-family starter homes in the southern part of the country, projects prices will not increase.

“We expect new-home selling prices to be somewhere between flat and down 3 percent in 2011,” Beazer’s Chief Executive Officer Ian McCarthy said on a conference call last month. “While there are clearly risks of further home-price declines, we believe that new homes are well positioned relative to non- distressed existing homes.”

Today’s report may be a reminder why Fed policy makers, who met Dec. 14 for the final time this year, say housing is lagging while the economy rebounds. They cited declines in home values as one of the constraints on consumer spending.

“The housing sector continues to be depressed,” Fed officials said in a statement after the gathering, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Even so, economists in the past two weeks have boosted projections for fourth-quarter growth, reflecting a pickup in consumer spending and passage of an $858 billion bill extending all Bush-era tax cuts for two years. The legislation also continues expanded unemployment insurance benefits through 2011 and cuts payrolls taxes by 2 percentage points next year.

     The following table shows the historical price change
according to the S&P/Case-Shiller home price indices. Cities are
ranked by largest monthly gain using non seasonally adjusted
data.
============================================================
               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
============================================================
US Composite-20  -1.32%   -2.39%   -0.80%   -8.08%  -24.70%
------------------------------------------------------------
Washington DC    -0.20%   -0.28%    3.65%    1.00%  -17.97%
Las Vegas        -0.21%    0.06%   -3.57%  -29.26%  -51.61%
Denver           -0.57%   -1.65%   -1.79%   -1.90%   -6.98%
Los Angeles      -0.75%   -1.26%    3.34%   -3.21%  -30.24%
Tampa            -0.90%   -2.19%   -3.61%  -18.27%  -34.48%
Miami            -1.11%   -2.60%   -3.39%  -16.95%  -41.06%
Phoenix          -1.11%   -3.93%   -4.28%  -21.61%  -47.21%
Dallas           -1.13%   -3.83%   -3.13%   -3.68%   -6.66%
Charlotte        -1.14%   -2.54%   -4.19%  -10.90%  -14.87%
============================================================
               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
============================================================
Boston           -1.23%   -2.82%   -0.23%   -3.03%   -8.85%
Seattle          -1.34%   -2.66%   -4.11%  -16.03%  -24.61%
Portland         -1.48%   -4.16%   -5.15%  -14.59%  -23.20%
San Diego        -1.50%   -3.05%    2.97%    0.55%  -26.28%
Cleveland        -1.52%   -4.76%   -2.64%   -6.03%  -11.83%
New York         -1.61%   -1.99%   -1.67%   -9.58%  -16.56%
San Francisco    -1.91%   -3.07%    2.23%   -0.43%  -31.28%
Minneapolis      -1.91%   -4.35%   -2.80%  -10.79%  -25.18%
Chicago          -1.99%   -3.08%   -6.48%  -15.95%  -25.04%
Detroit          -2.45%   -3.25%   -5.52%  -20.02%  -36.33%
Atlanta          -2.90%   -6.11%   -6.19%  -13.77%  -22.83%
============================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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