Housing Market Double Dip Confirmed as Prices Fall 3.9% in 4Q

This morning’s S&P/Case-Shiller Home Price Index for December 2010 demonstrated continued weakness in the housing market, and confirmed that the dreaded housing double dip may be here.  The numbers are sobering, and confirm what we all anticipated.  The National Home Price Index is down 2.4% from December 2009.  The National Index was down 3.9% during the fourth quarter of 2010, and is down 4.1% from the fourth quarter of 2009.  18 of the 20 metropolitan statistical areas are down year-over-year.  San Diego and Washington, D.C. were the only cities showing a gain over the year.

Just take one dip and end it!

David M. Blitzer, Chairman of the Index Committee at S&P commented:

“We ended 2010 with a weak report.  The National Index is down 4.1% from the fourth quarter of 2009 and 18 of 20 cities are down over the last 12 months.  Both Composites and the National Index are moving closer to their 2009 troughs.  The National Index is within a percentage point of the low it set in the first quarter of 2009.  Despite improvements in the overall economy, housing continues to drift lower and weaker.”

“The 10- and 20-City Composite indices remain above their spring 2009 lows; however, 11 markets – Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland (OR), Seattle, and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007.  We have seen more markets hit new lows in each of the past three months.”

It is important to bear in mind that the Case Shiller Index is a 3 month average on a two month delay, so it actually reflects market conditions that have already passed.

The main reasons for falling home prices are the massive supply of unsold homes in this country, and the weak demand for these properties.  A record setting number of foreclosures in 2011 should only increase the already massive surplus of homes.  High unemployment will continue to keep demand for these homes bottled up.  These conditions more or less guarantee that the equilibrium price point will continue to shift lower.

Further price declines will further weaken a market where more than a quarter of homeowners are underwater, and another quarter have between 0 and 5 percent equity in their homes.  The further these homeowners go underwater, the more likely they are to eventually default, adding to the housing surplus, and reinforcing the spiral of foreclosure, negative equity, and declining home values that we are currently seeing.

At some point the housing market will bottom out.  Doesn’t look like we are there yet.