The U.S. housing market slump is nowhere near over and home prices will probably keep falling well into next year, Karl Case, the co-developer of a widely watched gauge of the housing industry, said.
The hard-hit U.S. housing market has gone from being the primary source of the U.S. economic recession to one of its biggest casualties, said Case.
“Never say never, but it is looking increasingly probable that we will not see a housing market bottom until next year,” said Case, an economics professor at Wellesley College in Massachusetts who co-developed the S&P/Case-Shiller Home Price Indices.
“If the housing market was independent of the economy, we would be getting closer to a bottom, but that is not the case and we have a horrible economy,” he said in an interview late on Tuesday.
The United States has been in recession for more than a year, and the fourth quarter showed the biggest economic contraction since 1982.
The S&P/Case-Shiller Home Price Indices has shown the drop in home prices accelerating in recent months.
Case, whose research has focused on real estate markets and prices for over 20 years, said he had not anticipated the extent of home price depreciation that has transpired since the market’s peak in the second quarter of 2006.
“I did not think it was probable that we would have a home price decline of this magnitude,” he said.
Since the second quarter of 2006, average U.S. home prices have fallen 26.7 percent, according to the S&P/Case-Shiller U.S. National Home Price Index released on Tuesday.
For the 20 biggest U.S. metro areas, home prices fell a record 18.5 percent in December from a year-ago, according to S&P/Case-Shiller. On a month-over-month basis, prices fell 2.5 percent in December from November, compared with a 2.3 percent decline in the previous period. The 20-City Composite index dates back to 2000.
Prices in the S&P/Case-Shiller 10-City Composite Index dropped 19.2 percent year over year and declined 2.3 percent in December from November, compared with a 2.2 percent decline in the previous period.
The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards, and record mortgage foreclosures push down home prices. The impact has rippled through the economy, as well as to the rest of the world.
The strongest government action yet to aid homeowners since the housing market’s meltdown began is targeting just the right areas, Case said.
President Obama last week announced a plan to back refinancing for reliable borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of housing finance giants Fannie Mae and Freddie Mac. Case said if he were to grade the housing plan he would give it an “A.”
“While it does not have a high likelihood of making a big difference, it does have a high likelihood of making some difference and that is exactly the right thing to do,” he said.
The high number of foreclosure sales have dragged overall home prices down. A decline in foreclosures would help assuage one of the housing market’s biggest banes, a huge supply of unsold homes.
“In six months we will probably begin to see something happen in the pipeline of foreclosures and any impact that may have on home prices,” Case said.
