[Vision2020] Home Prices in U.S. Drop Most on Record in Quarter

[Kenneth Marcy]

Home Prices in U.S. Drop Most on Record in Quarter

By Kathleen M. Howley

May 12 (Bloomberg) -- Home prices in the U.S. dropped the most on record in 
the first quarter from a year earlier, led by California and Florida, as 
banks sold foreclosed properties.

The median price fell 14 percent to $169,000, the National Association of 
Realtors said today. Prices dropped in 134 of 152 metropolitan areas, with 
the deepest declines in Cape Coral and Ft. Myers, Florida, followed by San 
Francisco and San Jose.

Distressed sales increased transactions in 17 states from the fourth quarter 
as speculators and first-time buyers purchased bank-owned properties. Such 
homes typically sold for 20 percent less than others, the NAR said today. The 
inventory of previously owned homes on the market dropped to 3.7 million in 
March from 3.8 million a month earlier, according to NAR data. The number of 
new homes for sale fell to 311,000, the lowest since January 2002, according 
to the Commerce Department.

“There are a lot of forces pushing the market in different directions,” said 
Brian Bethune, economist at IHS Global Insight in Lexington, 
Massachusetts. “We’ve seen huge improvements in affordability, not only in 
prices but also in terms of mortgage rates below 5 percent, but what’s 
pushing down those prices is foreclosures and job losses.”

Total existing home sales fell 6.8 percent from a year earlier to a seasonally 
adjusted annual rate of 4.59 million units, the NAR said today. Sales were 
down 3.2 percent from the fourth quarter. The figures include single-family 
homes, condominiums and co-ops.

‘Bifurcated Market’

“We are very much in a bifurcated market with sharp differences between 
foreclosures and short sales on one hand, and traditional homes on the 
other,” Lawrence Yun, the NAR’s chief economist, said in a statement.

Some areas showed “dramatic” drops in home prices, Yun said.

“In areas with the biggest price declines, we also see much higher levels of 
distressed sales which are distorting the data,” he said.

The steepest price decline was in Cape Coral-Fort Myers, down 59 percent from 
a year ago, followed by Saginaw, Michigan, with a 54 percent drop. The next 
biggest decreases were Akron, Ohio, with a 48 percent decline; San Francisco, 
down 43 percent; and San Jose, California, with a 42 percent drop.

The largest sales gain from a year ago was in Nevada, up 117 percent; followed 
by California which rose 81 percent; Arizona up 50 percent; and Florida with 
a 25 percent increase.

Those four states accounted for the 26 highest foreclosure rates in the first 
quarter among U.S. cities with a population of 200,000 or more, according to 
RealtyTrac Inc., an Irvine, California-based seller of real estate data.

Slowing Declines

While the quarterly drop in prices set a record, the declines slowed in each 
of the three months. The U.S. median home price dropped 12 percent in March 
compared with a year earlier, according to NAR. That was slower than the 14 
percent decline in February and the 18 percent slide in January.

“I do think we have some early signs that the market overall is stabilizing,” 
Housing and Urban Development Secretary Shaun Donovan said today in a speech 
at an NAR conference in Washington. “Since January we’ve seen both home sales 
moving up and down around a relatively stable number and we are seeing the 
first signs that the rapid decline in home prices is starting to abate.”

Bank-Owned Homes

Donovan said the government will allow first-time homebuyers to use the $8,000 
tax credit approved by Congress in February as a down payment on mortgages 
guaranteed by the Federal Housing Administration. To qualify for the credit, 
purchases must be completed before Dec. 1.

U.S. banks held $26.6 billion of repossessed real estate at the end of 2008, 
more than double than a year earlier, according to the Federal Deposit 
Insurance Corp. in Washington. The banking industry lost $26.2 billion in the 
fourth quarter, the largest loss in FDIC records.

The average U.S. rate for a 30-year fixed mortgage was 4.84 percent last week, 
down from 6.05 percent a year earlier, according to mortgage buyer Freddie 
Mac. The rate fell to a record low of 4.78 percent last month.

On an annual basis, the fixed rate will probably average 5 percent this year 
and 5.3 percent in 2010, according to a forecast posted on NAR’s Web site. 
Last year, the rate was 6.1 percent.

Sales of existing homes likely will reach 4.97 million in 2009, up from 4.91 
million last year, according to the Realtors’ forecast.

To contact the reporter on this story: Kathleen M. Howley in Boston at 
kmhowley at bloomberg.net.
Last Updated: May 12, 2009 14:05 EDT