Home prices hit new lows in March making it the lowest month in the housing market falling past the bottom reached two years ago.  And with prices falling again, some economists fear that the nation’s housing market could enter a new downward spiral with declines pushing more borrowers underwater, triggering more foreclosures and setting off further drops.  

Home prices in big metro areas have sunk to their lowest since 2002, the Standard & Poor’s/Case-Shiller 20-city monthly index showed Tuesday, May 30th.  Since the housing bubble burst in 2006, prices have fallen more than they did during the Great Depression.  National prices are now down 32.7% from their peak set five years ago. 

The S&P/Case-Shiller national home price index covers 80% of the housing market.  ”This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” said David Blitzer, spokesman for Standard and Poor’s.  The housing market went through a brief recovery period starting in mid-2009, but home prices have fallen below the 2009 housing bust bottom in the first quarter, dropping 4.2% from the prior three months, according to the S&P Case-Shiller national home price index.  The 20-city composite index was at 138.16, falling below the 2009 low of 139.26. 

“Folks are having so much difficulty in getting financing for a home,” said Mark Vitner, senior economist at Wells Fargo. “And foreclosures will likely bring about a third dip.  It may be early next year before prices hit bottom.”  Foreclosures have forced prices down so much that some middle-class neighborhoods have turned into lower-income areas within months.  Homes in foreclosure sell at a 20 percent discount on average, which can hurt prices in the neighborhood, but many foreclosure sales have been delayed while federal regulators, state attorneys general and banks review how those foreclosures were carried out over the past two years.  Once those homes are eventually foreclosed upon, they will cause prices to fall even further.  Those declines are “etched in stone,” said Patrick Newport, U.S. economist at IHS Global Insight. 

Many analysts believe that prices could continue rolling back as the risk of falling prices frightens potential home buyers away from the market.  Although the Great Recession ended in June 2009, economists believe that the weak housing market will continue to be a drag on the recovery for years to come.  The severity of the housing decline is having other broad effects on the economy.  Roughly 92 percent of homeowners say it’s a bad time to sell their home, according to the latest Thomson Reuters/University of Michigan index of consumer sentiment.  And while seeing their home values plunge, many Americans are reluctant to spend money — a drag on an economy that depends on consumer spending. 

Dean Baker, co-director of the Center for Economic and Policy Research, said he expects prices to continue to fall through the rest of the year.  “You are going to see a further negative wealth effect as the price declines from last year,” Baker said. “So that is another source of drag on the economy.”  Others believe that prices are near, if not at, the bottom and that recent improvements in employment will keep things from getting worse.  But keep in mind that during the Great Depression, prices fell 31 percent and it took 19 years for the housing market to regain its losses after the Depression ended.

However, the picture is brighter in Southern California.  In the Los Angeles-Orange County metro area, prices remained 5.4% above its most recent bottom, hit in 2009.  Prices locally are equivalent to those seen in the fall of 2003. Coastal areas, such as San Francisco, San Diego, Los Angeles, Washington and Boston, have fared comparatively better in the past two years.  They have been helped by healthy local economies, desirable city centers and limited space for new housing.  In New York, homes are still 63 percent more expensive than in 2000.

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