Published: February 23, 2010
The Standard & Poor’s/Case-Shiller
index of home prices in 20 metropolitan areas rose 0.3 percent in December on a
seasonally adjusted basis, with most of the cities improving from November.
It was the
seventh consecutive month that the index showed rising prices, a welcome
respite after several years of wrenching declines. But another 600,000 households
slipped underwater during the fourth quarter, with their homes valued at less
than their mortgages, according to the data firm First American CoreLogic, a
real estate research company.
The total
number of households with negative equity is now 11.3 million, or 24 percent of
all residential properties with mortgages, up from 23 percent in the third
quarter, First American said.
Negative equity
is a major concern among policy makers because it can compel disillusioned
borrowers to forsake their properties, contributing to the foreclosure problem.
The breaking point for homeowners, research shows, is when negative equity
reaches about 25 percent.
Five million
people are now at or beyond that point, First American estimates, up from 4.5
million in the third quarter.
The research
firm recalibrated its data in the third quarter, which means earlier negative
equity numbers are not comparable. But it said that the number of severely
underwater borrowers was growing even faster than it expected a few weeks ago.
“Home prices in
the worst areas — Florida, Nevada and Arizona — fell more than we had expected,
increasing the amount of negative equity,” a First American senior economist,
Sam Khater, said.
First
American’s home price index, released last week, fell for both December and the
fourth quarter. That contrasted with the improving Case-Shiller numbers.
The two firms
measure different groups of homeowners using different methodologies. The
disparate results indicate how difficult it is at the moment to get a fix on
the housing market.
There is a
widespread feeling among analysts that the market is being kept afloat by the
government’s emergency measures, especially the tax credit for buyers. The
market’s true level will become apparent only after the tax credit ends in the
spring — assuming it is not renewed as it was in the fall.
Prices in the
West Coast cities tracked by Case-Shiller, including Los Angeles, Phoenix and
San Diego, increased the most in December. Laggards were Chicago, New York and
Tampa, Fla.
“The recovery
has slowed since the summer months, but it has not completely fallen apart,”
Maureen Maitland, S.& P.’s vice president for index services, said. “We’re
in a bit of a flat period.”
Las Vegas, the
worst hit of all the major housing markets, managed its second consecutive
monthly gain. “Vegas was so battered there is now a tiny bit of hope,” Ms.
Maitland said. “You can only fall so much.”
In the case of
Las Vegas, that was apparently a drop of 57 percent from its peak. Seven of 10
homeowners with mortgages in Nevada owe more on their properties than they are
worth, according to the First American data. In Arizona and Florida, about half
the owners are underwater.
Further price
declines could give many of these owners the impetus to walk away. If interest
rates rise and the tax credit is not renewed, another slump is expected.
Nationally, prices are already about where they were in summer 2003. Further
declines could add up to a lost decade for housing prices.
Joshua Shapiro,
chief United States economist for MFR Inc., said he expected the market to drop
after the tax credit expired. At that point, he said, “more of the true
fundamentals will come through on pricing.”
In the spring,
the seasonal adjustment factors will tend to weigh on Case-Shiller prices,
rather than bolster them as they do now. Without the adjustments, most of the
cities in the index fell in December. The composite dropped 0.2 percent for the
second consecutive month.
On an annual
basis, the 20-city index was down 3.1 percent. That figure has improved
consistently for a year. Only three cities — Detroit, Tampa and Las Vegas — are
still showing double-digit annual declines.
The quarterly
return for the Standard &
Poor’s/Case-Shiller index of national home prices, which incorporates data
from a broader slice of the country, was also released on Tuesday. That index
fell 2.5 percent in the fourth quarter compared with the same period in 2008.