US house prices remain in slump

The US recovery appears to have quickened in recent weeks. But the housing market remains a black spot. The widely monitored Case-Shiller index tracking prices in 20 major cities fell for a seventh month in a row in November, leaving prices 3.7% down on November 2010 – a faster year-on-year drop than in the previous month. Prices are 34% down on their 2006 peak.

What the commentators said

There is some good news, as Robert Shiller, who helped compile the index, told Sales have risen in the past few months, building permits have increased, and the National Association of Homebuilders’ Housing Market index, a forward-looking indicator, is up, though “not by much”.

But while all this suggests sales could temper the downturn or help prices stabilise, “I don’t see any reason to think that prices are going to head up dramatically now”, says Shiller. On the demand side, still-tight credit conditions and widespread negative equity – affecting 25% of homeowners – have offset the boost to demand from record-low mortgage rates. While the supply of houses for sale has edged down, “another wave of foreclosures” is looming, says

Banks’ seizures of properties from delinquent owners slowed last year amid official investigations into foreclosure practices. Now that banks have settled the issue, a rebound in the pipeline of foreclosed properties is likely. There are several million homes yet to come onto the market, and this inventory overhang will underpin supply and depress prices.

The history of burst bubbles means buyer beware. “If this is the bottom then this will be the first time that a major boom and bust hasn’t careened past fair value,” said Barry Ritholtz on Yahoo Finance. When bubbles burst, prices overshoot on the downside just as they do on the upside. Housing is no longer pricey but it isn’t yet dirt cheap. “Don’t expect housing to contribute to the so-called economic recovery anytime soon,” said Agustino Fontevecchia on

S/P Case-Shiller Composite-20 Home Price Index