Home Prices Post Biggest Drop in 21 Years

The S&P/Case-Shiller National Home Price Index saw an 18.2% decline in the last quarter of 2008, and the 20-city index fell 18.5% in December alone

The S&P/Case-Shiller U.S. National Home Price Index plunged 18.2% during the final quarter of 2008, the biggest annual decline in the closely watched index's 21-year history.

Separately, for the month of December alone the Case-Shiller 20-City Composite Index fell 18.5% compared with the previous December, also a record decline. The most severe declines were in Phoenix, Las Vegas, and San Francisco, which all dropped by more than 30% in December compared with December 2007.

But the financial crisis has helped to spread the pain across the nation. Other cities that were holding up relatively well until recently are now seeing a quickening pace of declines. The year-over-year price decline in the New York metro area, which is at the center of the financial meltdown, was 9.2% in December, compared with 8.6% in November and 7.7% in October. Home prices in Charlotte, a major banking hub, fell by 7.2% in December. In October, Charlotte prices fell at just 4.4% compared with a year earlier. And home prices were actually increasing on an annual basis as recently as March 2007.

More Decreases Ahead

Stuart Hoffman, chief economist for Pittsburgh's PNC Financial Services Group (PNC), said home prices will probably fall for years to come (though the declines will get smaller and smaller). Most metro areas won't start to see price increases until 2011 or 2012, he said.

"I think people would be happy if both home prices and stock prices just stopped going down," Hoffman said.

The speed of the declines in several metro areas, including Denver, Los Angeles, Miami, San Diego, and Washington, improved slightly in December or at least remained stable. But in many cases, it's just because prices are already falling at such a rapid pace. A notable exception, however, is Denver, where prices dropped by just 4% in December compared with a year earlier.

In the Miami metro, for example, prices fell at an annual pace of 28.8% in December—almost the same pace as in November.

Rock-Bottom in Miami?

Miami real estate agent Zoila Perez-Chanquet said investors willing to pay cash are bidding down prices for foreclosed homes, which make up much of the inventory. But sales are picking up now that prices are so low, and sellers can sometimes hold firm on already rock-bottom prices, she said.

One of her clients offered $65,000 in cash for a two-bedroom home listed at $79,900 in the Hialeah Gardens area of Miami-Dade County. The property sold this month for $90,000.

"Buyers need to understand that prices are low enough as it is," Perez-Chanquet said. "They need to offer either listing price or above because the sellers are taking the highest offer."

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