No bottom in sight for home prices

For recovery, inventories must be sold and mortgages made available, experts say
By J.W. ELPHINSTONE, Associated Press

Posted Wednesday, February 27, 2008
NEW YORK -- House prices may still have a long way to fall.

Across much of the nation, home values are dropping and banks are repossessing more every day. Most experts say the dive won't hit bottom for another year, and only after excess inventory is sharply reduced and credit markets improve.

"The housing value crisis is spreading and deepening," said David Abromowitz, a senior fellow at the Center for American Progress. "It has gone way beyond subprime borrowers stretched too far with bad loans and now has clearly extended into the housing markets more broadly."

Home prices dropped 8.9 percent in the final quarter of 2007 compared with a year ago, according to the Standard & Poor's/Case-Shiller home price index released Tuesday. That marked the steepest decline in the index's 20-year history.

Meanwhile, the narrower Office of Federal Housing Enterprise Oversight said Tuesday that nationwide prices dipped 0.3 percent in the fourth quarter, the first annual decline in 16 years. Eleven states posted declines in values for the year, while prices in nine states appreciated more than 5 percent.

The OFHEO index is calculated on mortgages of $417,000 or less that are bought or backed by government-sponsored Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans or homes in more expensive markets like California and the Northeast.

"We reached a somber year-end for the housing market in 2007," said Robert Shiller. "Home prices across the nation and in most metro areas are significantly lower than where they were a year ago. Wherever you look, things look bleak."

That's bad news for Sheila Prior and her husband, Matthew. Despite the weakness in the housing market, they are putting their three-bedroom home in Durham, N.C., up for sale this week. After being laid off in December from GlaxoSmithKline PLC, Matthew accepted a job offer in Plymouth, Minn.

The couple, who have a 1-year-old daughter, initially wanted to list their home for $250,000. But after checking what other homes sold for in the area recently, their real estate agent recommended $233,000 -- the same price they paid for it in June 2006.

"It was less than what we were hoping for, but renting it out wasn't financially viable, either, so we decided to sell it anyway," Sheila said. She's optimistic that they can sell the house within six months, but worries about the competition from KB Home, which is selling new houses in the area at discount prices.

Builders across the nation are slashing prices, giving upgrades, even offering trade-ins to sell homes from an inventory that's near record levels. Residential construction, meanwhile, has fallen 60 percent from the peak.

"That's the only way of clearing out a mountain of unsold inventory to allow markets to find a bottom," said Mark Zandi, chief economist with Moody's Economy.com. "But also, housing won't pick up again until mortgage credit becomes available."