Home prices don’t decline as much

Wednesday, April 29th, 2009

Julie Schmit
USA Today

Prices of single-family homes in 20 U.S. metropolitan areas in February were down 18.6% from a year earlier, yet the fact that the rate of decline slowed signaled some hope for the housing market, a report said Tuesday.

In 15 markets, annual declines were in excess of 10% and average home prices nationwide hit 2003 levels, according to the Standard & Poor’s/Case-Shiller index.

Yet the drop in the 20-city index was less than the 19% year-over-year decline in January. Also, it was the first time in 16 months that annual declines didn’t set records. “We … need a few more months of data before we can determine if home prices are finally turning around,” says David Blitzer of S&P’s index committee.

The National Association of Realtors said last week that home prices rose more than normal from February to March and that the market may be stabilizing. Still, price drops remain brutal, especially in areas where they rose fast. The Case-Shiller index shows the hardest-hit cities in February were Phoenix, Las Vegas and San Francisco.

Prices continue to fall amid a glut of unsold homes, including foreclosed ones, says Lawrence Yun, NAR chief economist. He says prices will keep falling in regions with many foreclosures and strengthen where there are few.

On that front, the Obama administration Tuesday unveiled a plan that it says may reduce payments for up to 1.5 million at-risk homeowners.

Under the plan, the government would tap a $50 billion housing fund to entice mortgage servicers to modify second mortgages and cut monthly payments for borrowers.

Half the troubled mortgages have second loans, given by lenders to help buyers avoid mortgage insurance and reduce their down payments. The second loans make it harder to modify first loans, because more parties are involved, and the home may still be unaffordable even if a first loan is changed, the administration says.

The plan would pay mortgage servicers $500 to modify second loans at 1% or 2% for five years, if first loans are modified. Servicers would also get $250 a year for three years if borrowers don’t default. Borrowers could get $1,000 over five years to pay down principal.

The plan may encourage modifications because second loans would likely be worthless in a foreclosure, says Ellen Harnick of the Center for Responsible Lending. It could have a significant impact on prices if foreclosures are curbed, she says.


The five metro areas in the 20-city Case-Shiller index with the largest declines in home prices in February compared with a year ago:



Las Vegas


San Francisco




Los Angeles


Source: Standard & Poor’s Case-Shiller Home Price index


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