Home Prices in U.S. Cities Fall More-Than-Forecast 3.8%, Case-Shiller Says

Home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year.

The S&P/Case-Shiller index of property values in 20 cities fell 3.8 percent from August 2010, the group said today in New York. The median forecast of 30 economists surveyed by Bloomberg News was for a 3.5 percent decline.

Recovering the 31 percent plunge in home prices from their 2006 peak will probably be years in the making as foreclosures throw more properties on the market and sales flag. Federal Reserve policy makers like William Dudley are among those that believe bolstering housing is among the “most pressing issues” facing the central bank.

“There is still a big imbalance between demand and supply,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a 3.9 percent decline. “Prices will keep declining into 2012.”

Consumer confidence unexpectedly slumped in October to the lowest level since March 2009 as Americans’ outlooks for employment and incomes soured, another report today showed. The Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September. Economists projected the October gauge would climb to 46, according to the median forecast in a Bloomberg survey.

Shares Fall

Stocks dropped on the reports. The Standard & Poor’s 500 Index fell 1.2 percent to 1,239.67 at 10:02 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 2.19 percent from 2.23 percent late yesterday.

Estimates in the Bloomberg survey of economists ranged from declines of 3 percent to 4.3 percent. Year-over-year records began in 2001. The group revised the 12-month drop in July to 4.2 percent from a previously estimated 4.1 percent.

Prices were little changed in August from the prior month after adjusting for seasonal variations, following a 0.1 percent decrease in July from June. The July reading was previously reported as a gain. Unadjusted prices rose 0.2 percent from the prior month after a 0.9 percent July advance.

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.

Moving Average

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

Sixteen of the 20 cities in the index showed a year-over- year improvement in prices before adjusting for seasonal variations as 10 showed a gain in the month of August, the report showed.

“We see a modest glimmer of hope with these data,” David Blitzer, chairman of the S&P index committee, said in a statement. “The Midwest is one region that really stands out in terms of recent relative strength,” he said, as Chicago, Detroit and Minneapolis were among cities showing an August gain before seasonal adjustment.

Nonetheless, prices were down in 18 cities in the 12 months ended in August, led by an 8.5 percent decrease in Minneapolis. Home prices in Las Vegas made a new post-slump low. Detroit and Washington were the only cities showing year-over-year increases in property values.

‘Serious Impediment’

Falling home prices pose “a serious impediment to a stronger economic recovery,” Dudley, president of the Federal Reserve Bank of New York, said in remarks at Fordham University in the Bronx yesterday. He predicted “continued modest growth” for the U.S.

“Continued house price declines could lead to even more defaults, foreclosures and distress sales, undermining wealth, confidence and spending,” Dudley said. “Breaking this vicious cycle is one of the most pressing issues facing policy makers.”

The housing market is yet to gain speed more than two years after the recession ended in June 2009. Sales of previously owned homes fell 3 percent in September from the prior month, according to the National Association of Realtors.

While Commerce Department data showed builders began work on more new houses last month, the gain was led by a surge in building of apartments and other multifamily dwellings as more Americans became renters.

Underwater Mortgages

The drop in home values has pushed almost a quarter of U.S. mortgage borrowers underwater, meaning their debt is more than their homes are worth, according to CoreLogic Inc., a real estate data company in Santa Ana, California.

Builders FirstSource Inc. (BLDR), a Dallas-based maker of building products such as lumber, doors and windows sold to construction companies, is among businesses noting uneven progress in the industry.

“Housing demand remains weak due to the struggling economy, high unemployment and the limited availability of mortgage financing,” Floyd Sherman, chairman and chief executive officer, said on an Oct. 21 conference call with analysts. “We’re really seeing a mixed bag of improvements” across markets.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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