Home values headed to new lows?

Two new reports show home values falling again. They could dip below last year's lows, some economists say.

Al Behrman/AP/File
In this April 27 photo, a sign is posted outside a home recently listed for sale in Mariemont, Ohio. After recovering from last year's lows, home values are falling again, according to two new reports.

Housing prices are heading down toward the lows reached in the depths of the recession a year ago, according to home price reports released Tuesday.

In March, home prices fell 0.5 percent from the previous month, according to the S&P/Case-Shiller home price index measuring price moves in 20 US cities. Not seasonally adjusted, the 20-city composite index has now fallen six months in a row.

Even adjusting for seasonal variance, home prices fell1.9 percent from the fourth quarter to the first quarter, according to a release from the Federal Housing Finance Agency.

These declines have come even before the April 30 expiration of the home buyer tax credit, which was expected to boost sales. Many economists now expect this second dip in housing prices to test the lows of last year.

"We're still going to see prices drop," says Patrick Newport, an economist with IHS Global Insight in Lexington, Mass. He forecasts a 6 percent to 8 percent fall in a separate quarterly Case/Shiller index, which would take the national housing price well below last year's multiyear low. He expects prices to start moving up next year.

The fall in housing prices may not breach last year's lows but it could last longer, says Paul Dales, an economist with Capital Economics in Toronto. "I wouldn't imagine that house prices are going to plunge to new lows. Housing looks fairly undervalued relative to income."

In previous double-dip housing markets -- in the US in the 1930s and Britain and Scandinavia in the 1990s -- the second dip didn't fall much beyond the first dip, he says.

Unfortunately, prices didn't snap back quickly, either. Mr. Dales estimates it will be 2012 before the recovery in housing prices begins.

Not everyone believes the situation is as dire as it looks. Foreclosure properties represent so many of current sales that they're artificially reducing the average price of homes.

Once that supply of foreclosed homes diminishes and the bulk of sales represent traditional (and higher priced) transactions, "we will see a sharp rebound in these indices over the next year or two," says Stan Longhofer, director of the Center for Real Estate at Wichita State University in Wichita, Kan.

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