Consumer confidence and home prices take a hit

WASHINGTON Tue Nov 27, 2007 11:34am EST

1 of 3. A man looks at music CD's inside the Virgin Megastore in New York, November 26, 2007.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - Housing and credit troubles took more of a toll on the U.S. economy as prices on pre-owned single-family homes tumbled in the third quarter and consumer confidence in November sank to a two-year low, reports on Tuesday showed.

Home prices in the third quarter slumped 4.5 percent from a year earlier, matching a record decline from the previous period as the housing downturn deepened. The S&P/Case-Shiller National Home Price Index also fell 1.7 percent from June, marking the largest quarterly decline in the index's 21-year history, S&P said in a statement.

"Consistent with prior 2007 reports, there is no real positive news in today's data," Robert Shiller, chief economist at MacroMarkets LLC and creator of the indexes, said in the statement. All 20 metropolitan areas tracked by the indexes showed price drops or slower price appreciation, he said.

U.S. government securities and stock markets were reacting to separate news that nation's largest bank, Citigroup Inc., got a $7.5 billion cash injection with the sale of a 4.9 percent stake to Abu Dhabi Investment Authority, the world's largest sovereign wealth fund.

Prices on U.S. Treasury bonds fell on Tuesday, giving back some gains after the biggest rally in three years, and stocks were up.

Citigroup (C.N) shares were up 0.6 percent at $29.98 with the deal that will give it fresh capital as it wrestles with the subprime mortgage crisis.

The Case-Shiller quarterly home price index has been falling since the second quarter of 2006 as lenders clamp down on lending to risky borrowers who had depended on home price gains to keep their homes. Rising foreclosures are adding to soaring inventories of unsold homes, depressing prices further.

Florida is the hardest hit state, with prices in the Tampa and Miami areas down 11.1 percent and 10 percent respectively over the past year, the indexes show. Home prices around San Diego, California, and economically depressed Detroit, Michigan declined by 9.6 percent over the 12-month period.

CONFIDENCE AT TWO-YEAR LOW

U.S. consumer confidence fell for a fourth straight month in November to its lowest in two years on concerns about rising gasoline prices and financial market volatility.

The Conference Board said on Tuesday its index of consumer sentiment fell to 87.3 in November from a revised 95.2 in October, a sharper fall than expected. The median forecast of economists polled by Reuters was for a reading of 91.6.

The index was at its lowest since October 2005, when it read 85.2 in the aftermath of Hurricane Katrina, the Conference Board said.

"If sustained at this level - sustained is the key word - consumers' spending will more or less grind to a halt, making it very difficult for the economy as a whole to avoid recession," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Lynn Franco, director of the New York-based Conference Board's consumer research center, said the drop was primarily due to a sharp slide in the expectations index, which fell to its lowest since March 2003 at the outbreak of war in Iraq.

(Additional reporting by Jennifer Coogan, Burton Frierson, Ellen Freilich and Al Yoon in New York; Editing by Neil Stempleman)

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