NEW YORK (Reuters) - The U.S. housing market slump is nowhere near over and home prices will probably keep falling well into next year, one of the property market’s best-known economists said.
Karl Case, the co-developer of a widely watched gauge of the housing industry, told Reuters that the hard-hit U.S. housing market has gone from being the primary source of the U.S. economic recession to one of its biggest casualties.
“Never say never, but it is looking increasingly probable that we will not see a housing market bottom until next year,” said Case, an economics professor at Wellesley College in Massachusetts.
“If the housing market was independent of the economy, we would be getting closer to a bottom, but that is not the case and we have a horrible economy,” he said in an interview late on Tuesday.
The U.S. has been in recession for more than a year. The fourth quarter showed the biggest economic contraction since 1982.
The Standard and Poor’s S&P/Case-Shiller Home Price Indices, which Case co-developed, has shown an acceleration in the fall-off in home prices in recent months.
Case, whose research has focused on real estate markets and prices for over 20 years, said he did not anticipate the extent of home price depreciation that has transpired since the peak in the second quarter of 2006.
A foreclosed home up for auction is seen in the Queens borough of New York, February 24, 2009. REUTERS/Shannon Stapleton
“I did not think it was probable that we would have a home price decline of this magnitude,” he said.
Standard and Poor’s said on Tuesday the S&P/Case-Shiller 20-City Composite Index was down a record 18.5 percent in December, with home prices on a month-over-month basis falling 2.5 percent in December from November, compared with a 2.3 percent decline in the previous period. The 20-city index dates to 2000.
S&P said its 10-City Composite Index declined 2.3 percent in December from November, compared with a 2.2 percent decline in the previous period, for a 19.2 percent drop year over year -- also a record for the index, which dates back to 1988. From the peak in the second quarter of 2006, average home prices are down 26.7 percent, S&P said.
The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards, and record mortgage foreclosures push down home prices. Its impact has rippled through the recession-hit economy, as well as to the rest of the world.
The strongest government action yet to aid homeowners since
the housing market’s meltdown began is targeting just the rightareas, Case said.
President Barack Obama last week announced a plan to back refinancing for reliable borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of housing finance giants, Fannie Mae and Freddie Mac. Case said if he were to grade the housing plan he would give it an “A.”
“While it does not have a high likelihood of making a big difference, it does have a high likelihood of making some difference and that is exactly the right thing to do,” he said.
Foreclosure sales have dragged overall home prices down. But fewer foreclosures help assuage one of the housing market’s biggest banes which is a huge supply of unsold homes.
“In six months we will probably begin to see something happen in the pipeline of foreclosures and any impact that may have on home prices,” Case said.
Additional Reporting by Al Yoon
Our Standards: The Thomson Reuters Trust Principles.