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Home prices less dismal, but still falling steeply

They had been dropping at record levels for several months, but a new report says the decline eased slightly in February.

By Staff writer / April 28, 2009

A sold sign hangs in the yard of a home that was for sale in Bainbridge Township, Ohio, Monday. A new monthly report on housing-market numbers, covering February, did not show a record decline, though US home prices are still falling steeply.

Amy Sancetta/AP

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The pace of decline in US home prices has been easing a bit, but the downward trend still persists from New York to Seattle.

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That’s the message from recent housing-market numbers, including the release of the widely watched Standard & Poor’s Case-Shiller home price index Tuesday.

After months of record year-over-year declines, the new monthly report, covering February, did not show a record decline. Still, the fall in prices for 20 major cities remains steep – down more than 18 percent in the past year.

Perhaps most notable, the downward trend runs nationwide. Despite the somewhat softer pace of declines, home prices fell in February in all 20 cities. The pattern now may be more connected to the weak economy than to the popping of a bubble in once-hot markets like Phoenix.

“Housing prices … are no longer falling off a cliff. Instead, they are rolling down a steep hill,” says Patrick Newport, an economist at IHS Global Insight in Lexington, Mass., in a report analyzing the numbers.

Four once-booming states – California, Florida, Arizona, and Nevada – remain the epicenter of the housing bust. But other states are closing the gap. Seven cities in the Case-Shiller survey are in the four "bust" states. In the past year, they have seen housing prices fall by 28.2 percent on average. The 13 cities not in those bust states have seen prices drop by less than half that figure: 13.2 percent. In the last four months, however, home prices in the "bust" state cities have fallen by 12.3 percent. Cities not in the "bust" states were only marginally better off for that period, with prices falling by 9.6 percent.

Many economists expect home prices to keep falling, in part because they are still high relative to rental prices and personal incomes. But as many Americans have learned, home values aren’t automatically tied to such fundamentals.

Some keys to home prices now will be things like the unemployment rate in particular cities and the high inventory of homes for sale – an indication of more sellers than buyers.

“Housing prices will continue to drop … because foreclosures are still rising and because the number of homes on the market is near record levels,” predicts Mr. Newport.