Economy Watch: Housing Prices Take It on the Chin

Vexed by oversupply, tight credit and high unemployment, the housing market is proving to be the sick man of the recovery.

By Dees Stribling, Contributing Editor

Retail sales and other economic indicators might be chugging along now, but the housing market is proving to be the sick man of the recovery. Vexed by oversupply, tight credit and high unemployment, the market is bed-ridden and not responding to various interventions.

That’s the conclusion most observers are drawing from the fact the S&P/Case-Shiller Home Price Indices trended toward negative territory in October. The 10-City Composite Index posted a meager 0.2 growth rate in October compared with the same month last year; as recently as May, its year-over-year growth was 5.4 percent. The 20-City Composite Index has now wholeheartedly re-entered negative territory, down 0.8 percent in October versus the same month a year ago.

The month-over-month change in October in every one of the 20 markets in the 20-City Composite was negative. The year-over-year change in each market wasn’t much better: Only the three major California markets (LA, SF and SD) plus Washington DC showed any price appreciation this October compared with last.

In some metros areas, a decade or more of price appreciation has been lost. An October index level of 68.86 in Detroit indicates that average home prices there are more than 30 percent below their January 2000 values. Las Vegas, Cleveland and Atlanta are roughly back to their 2000 levels. On a relative basis, Los Angeles, New York and Washington DC have fared best, retaining the most of their mid-2000 price appreciation.

“There is no good news in October’s report,” David M. Blitzer, chairman of the index committee at Standard & Poor’s, in a blunt statement. “Home prices across the country continue to fall. The trends we have seen over the past few months have not changed.”

Consumers not quite so confident

As if on cue after Tuesday’s housing report, the Conference Board’s Consumer Confidence Index, which had improved in November, decreased slightly in December (in fact the data for the Confidence Index was collected earlier this month). The Index now stands at 52.5, down from 54.3 in November. The index’s baseline is in those presumably confident days of a generation ago, with 1985 = 100.

“Despite this month’s modest decline, consumer confidence is no worse off today than it was a year ago,” noted Lynn Franco, director of the Consumer Research Center at the Conference Board in a statement that put the best face on things. “Consumers’ assessment of the current state of the economy and labor market remains tepid, and their outlook remains cautious. All signs continue to suggest that the economic expansion will continue well into 2011, but that the pace of growth will remain moderate.”

Despite the glum news on the housing front, Wall Street managed to eke out a few gains on Tuesday. The Dow Jones Industrial Average was up 20.51 points, or 0.18 percent, while the S&P 500 advanced 0.08 percent. The Nasdaq lost 0.16 percent.