NEW YORK (Reuters) - Prices of single-family homes plunged a record 17.4 percent in September from a year earlier, according to a key S&P index released on Tuesday.
The composite index of 20 metropolitan areas fell 1.8 percent in September from August, according to the Standard & Poor’s/Case-Shiller Home Price Indices, and a co-developer of the index said rising unemployment makes the outlook for the hard-hit U.S. housing market even bleaker.
S&P said in a statement that its composite index of 10 metropolitan areas declined 1.9 percent in September from August for an 18.6 percent year-over-year drop, also a record.
Declines in home prices in most areas were greater in September than in August, S&P said.
“This is a pretty gloomy report,” Karl Case, co-developer of the index and a professor of economics at Wellesley College, said on a conference call following the release of the report.
And because the Standard and Poor’s S&P/Case-Shiller Home Price Indices has not yet accounted for several important factors that have worsened in recent months, led by unemployment, the outlook is darkening further.
“Unemployment is rising rapidly, a primary factor that causes foreclosures to rise and home prices to decline,” Case said.
“Plus, some people cannot even get a loan due to the credit crunch, so there are a lot of factors out there that have not even hit these home price numbers yet,” he said.
The U.S. housing market is currently suffering the worst downturn since the Great Depression. A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.
The U.S. economy is considered to be either in or on the brink of a recession, and most economists and experts contend that an end to the downward spiral in housing prices is crucial to any recovery.
“House price declines have been at the root of the financial crisis and it appears, as of September, that this decline continued unabated,” said Lawrence J. White, professor of economics at New York University’s Stern School of Business.
“Until we have some kind of stabilization in the house price sector, we will continue to see problems in the financial sector,” he said.
“House prices will probably drop another 10 percent, but I am hopeful that a bottom will be reached in the late spring of 2009,” he said.
The rate of home price declines has accelerated on a quarterly basis, too.
In the third quarter, the decline in the S&P/Case-Shiller U.S. National Home Price Index — which covers all nine U.S. census divisions — remained in double digits, posting a record 16.6 percent decline versus the third quarter of 2007. This has worsened from annual declines of 15.1 percent and 14.0 percent, reported for the second and first quarters of the year, respectively.
The U.S. National Home Price Index dropped 3.5 percent in the third quarter from the second quarter.
“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.
As of September, S&P’s 10-City Composite is down 23.4 percent from its peak, the 20-City Composite is down 21.8 percent and the National Composite is down 21.0 percent.
Looking at the returns of the U.S. National Index, prices are back to where they were in early 2004.
Phoenix was the weakest market, with an annual decline of 31.9 percent, followed by Las Vegas, down 31.3 percent, and San Francisco, down 29.5 percent. Miami, Los Angeles, and San Diego did not fare much better, with annual declines of 28.4 percent, 27.6 percent and 26.3 percent, respectively.
New York, buoyed by plentiful jobs and big bonuses in the financial sector in recent years, showed a more modest annual decline of 7.3 percent.
But rampant layoffs in the financial sector are going to weigh heavily on home prices in the New York area, Case said.
“Home prices in New York will probably get worse, as it is vulnerable to the contraction in the financial services sector, so the layoffs will probably have a major impact,” he said.