U.S. Home Prices Slip Again, Reviving Talk of a Double Dip

The U.S. housing sector suffered another setback with home prices in 20 major cities falling 0.7% in September, according to the S&P/Case-Shiller U.S. National Home Price survey -- the index's third straight monthly decline.

A Bloomberg survey had expected home prices in the 20-city index to fall 0.4% in September from August, after falling a revised 0.2% in August from July.

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On a year-over-year, non-seasonally adjusted basis, home prices in the 20-city index rose 0.6% in September, though this was still less than the 1% analysts had expected, and well below August's 1.7% year-over-year increase.

Meanwhile, the 10-city index also fell a non-seasonally adjusted 0.5% in September from August, but rose 1.6% on a year-over-year basis.

Home prices are now down about 26% since peaking in 2006.

"Another Weak Report"

David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, did not attempt to sugarcoat the September housing data. "Another weak report; weaker than last month. The national index is down 1.5% from the third quarter of last year and 15 of 20 cities are down over the last 12 months. Other than Tampa, FL, there are no new lows this month but many analysts will argue that a double dip will be confirmed before spring," Blitzer said, in a statement. "While some of the bad numbers may reflect the end of the government's tax incentive for first time home buyers, there are other problems weighing on the housing market."

Blitzer added the breadth of the September decline underscores the report's weakness, noting that 18 of 20 cities fell in September compared to August, up from 15 in August from July. The only two that didn't were Las Vegas and Washington, D.C. "Overall, there are few, if any, good numbers in this month's data," Blitzer added.

September Declines in Nearly All Key Cities

Monthly price changes in September in major U.S. cities were as follows: New York, down 0.3%; Chicago, down 1.5%; Boston, down 1.3%; Washington, D.C., up 0.3%; Atlanta, down 1.0%; Tampa, down 0.8%; Miami, down 1.2%; Dallas, down 1.6%; Denver, down 1.0%; Los Angeles, down 0.1%; Las Vegas, up 0.1%; San Francisco, down 0.9%; and Seattle, down 0.6%.

Originally greeted by Wall Street with a shrug, S&P/Case-Shiller home price data rose to market-mover status in 2008 as it became clear that the U.S. housing boom during the past decade was, in fact, a bubble fueled considerably by mortgage market excesses, from borrower to lender. The bursting of that bubble triggered record home-mortgage foreclosures and mortgage-backed securities defaults (toxic assets), which led to the financial crisis that the U.S. and world are still trying to end today.

After a second burst of home purchase activity that roughly paralleled the extension of the home-buyer tax credit, prices fell back as the Sept. 30 closing deadline for the credit approached. Hence, that demonstrates that despite a generally improving U.S. economy, there's sill not enough organic demand to support both home sales and prices.

The one ray of light in September's report -- and it's a bitter-sweet one -- concerns the market price mechanism. Lower prices will eventually attract more home buyers into the market. Still, that implies a period of "short-term price pain, for long-term gain" for the housing sector until lower prices bring inventories back to normal levels.