U.S. Home Prices Continued to Decline in February
Construction has been halted in this subdivision in Chandler, Ariz., a suburb of Phoenix.
Phoenix has achieved the unwelcome distinction of becoming the first major American city where home prices have fallen in half since the market peaked in the middle of the decade, according to data released Tuesday.
Though historical statistics are scant, experts said the precipitous decline probably had few if any equals in modern times.
“Even during the Depression, I’m not sure prices fell this quickly,” said Karl Guntermann, a professor of real estate at Arizona State University.
Greg Swann, a Phoenix real estate agent, took a moment to marvel at the news. “What happened here will some day be a new chapter in ‘Extraordinary Popular Delusions and the Madness of Crowds,’ ” the classic survey of investing mania, he said. “We were living during the boom like there was no tomorrow. And guess what? Now it’s tomorrow.”
Home prices in the Sun Belt city, the 12th-largest metropolitan area in the United States, dropped 4.5 percent in February, according to the Standard & Poor’s Case-Shiller Home Price Index. Prices in Phoenix are now down 50.8 percent since the market peaked in June 2006.
For the country as a whole, the Case-Shiller numbers offered the thinnest of silver linings: things are still getting worse, but more slowly.
In February, the price of single-family homes in 20 major metropolitan areas fell 18.6 percent from the year earlier, compared with a record drop of 19 percent in January.
“Finally, we’re seeing a touch of moderation,” said David Blitzer, chairman of S.& P.’s index committee. “This is the kind of thing one might see if we’re beginning to see a bottom. I would not run out and celebrate, but I would not dig the bunker any deeper.”
Mr. Blitzer said the decline in Phoenix outpaced any during the recession of the early 1990s, for which reliable figures are available. The only precedents he could cite were the Midwestern cities hit by the Great Depression and a contemporaneous drought, and Miami after a 1920s craze for beachfront property reversed itself.
The boom in Phoenix was founded on a basic truth: it was a place where many people wanted to live. But the market turned irrational. Investors bought homes they did not even bother to rent out. They merely waited a few months until prices rose again so they could flip them.
Ordinary homeowners got caught up, too. “People saw themselves as cashing in on a once-in-a-lifetime opportunity,” Mr. Guntermann said.
Except for the few who managed to get out at the peak, it was a mistake. By now, anyone who bought in Phoenix a decade ago would have lost money after inflation. Many did not get off so easily. Foreclosure notices were filed against one in 40 houses in the metropolitan area in the first quarter, according to RealtyTrac Inc. That was the ninth-highest rate in the country.
The Case-Shiller data show that housing markets across the United States are still suffering. Half of the 20 metropolitan areas in the index posted record year-over-year declines. In all, the 20-city index was down 2.2 percent from January.
From Atlanta to San Francisco to Chicago, not one of the 20 cities posted a gain in home prices from January to February, and values in all but five cities dropped by double digits from a year earlier.
The nearly 51 percent drop in Phoenix is not an isolated plunge. Prices in Las Vegas are down some 48 percent from their peaks. They are down 45 percent in Miami from their highest levels, and down 40 percent in Los Angeles and San Diego.
Economists said housing prices would probably continue to fall as Americans, worried about rising unemployment and the recession, put off big financial decisions like buying a home.
Some economists expect housing prices to fall another 5 to 10 percent before they hit a bottom; others say that prices could decline by as much as a third. According to the National Association of Realtors, the median price of a home in the United States, which peaked above $230,000 in 2006, has fallen to $175,200.
As prices have dropped, frozen housing markets in hard-hit areas like Southern California, Phoenix, Las Vegas and South Florida have begun to thaw. Record-low mortgage rates and huge inventories of foreclosed homes and other fire-sale properties have enticed first-time buyers to the market and lured others who had been sitting on the sidelines.
Home sales in Southern California and the San Francisco Bay area, where foreclosures dominate many markets, have snapped back this spring as prices dropped. But sales have slowed to a crawl in other markets like New York City, where prices declined 10 percent from a year ago.
“We’re seeing very strong sales in a few states and weak sales across 40 states,” said Patrick Newport, United States economist at IHS Global Insight. “The key factor driving them right now is just the excess inventory. Even though prices are undervalued, they’re still going to drop because of the excess. Even if we were at full employment we’d still see prices dropping.”
Inventories of unsold homes are edging down slightly, but there was still a glut of 3.7 million unsold homes in March, the Realtors’ group reported, representing a supply of nearly 10 months.
Mr. Swan, the realty agent, said inventories of lower-priced homes were already dwindling in Phoenix as investors snapped up bank-owned properties at bargain prices.
“I’ve got Canadians coming here who are putting together investment pools of millions of dollars to buy houses by the hundreds,” he said. “They’re going to rent them out to all the people who were foreclosed and need a place to live. This is going to be a good year for us.”
http://www.nytimes.com/2009/04/29/business/economy/29econ.html
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