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'Double dip' in home prices is official, and prices could drop more

Home prices fell sharply during the first quarter of 2011, according to the S&P/Case-Shiller index. The 'double dip' means they dropped below their Great Recession low point, reached in early 2009.

By Staff writer / May 31, 2011

In this May 23 photo, a home is shown for sale in Chagrin Falls, Ohio. Home prices have reached their lowest points since the housing bubble burst in 2006, driven down by foreclosures, a glut of unsold homes and the reluctance or inability of many to buy.

Amy Sancetta/AP


A widely watched index of home prices has fallen to a level below its recession low point, an official sign that the US housing market is in a so-called "double dip" downturn.

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Home prices fell sharply during the first quarter of the year, according to Standard & Poor's Case-Shiller index of US home prices. That leaves home prices below the bottom they reached early in 2009, as the United States was mired in a financial crisis and deep recession.

The news, released by S&P on Tuesday, confirms that the housing market is beset by ongoing challenges, even as the broader economy has stabilized and shown modest job growth this year.

The key problems:

Credit is tight for would-be buyers. Even though interest rates are low, banks are being unduly stringent in approving loans, say some real estate experts.

Uncertainty runs high. It's hard for potential homebuyers to make a major financial commitment if they feel uncertain about job security or about whether home prices will keep falling.

The supply of homes for sale is huge. The continuing tide of foreclosures puts downward pressure on prices, by keeping a glut of homes on the market at distress-sale prices. The problem feeds on itself, since many homeowners default in part because they see the value of their properties declining – leaving them with less incentive to make the effort to stay current on their mortgage payments and more incentive to let lenders take over the properties.

The foreclosure wave may have already peaked, but the numbers of loans in serious delinquency remain at historically high levels.

"Weak demand, foreclosures, and a glut of homes for sale should translate into at least another 5 percent drop in the Case-Shiller composite indices," economist Patrick Newport of the forecasting firm IHS Global Insight wrote in an analysis Tuesday.

He said a key reason that further price declines are "etched in stone" is that so many homeowners have seen their home values fall well below the balances due on their loans.

The Case-Shiller index of national home prices, which fell to a level of 125.41 for the first quarter, is still 25 percent above where it was in 2000. But adjusted for inflation, that means home prices are virtually unchanged over that time.


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