U.S. home prices fall to ’04 level
The downturn of the nation’s housing market accelerated in the third quarter as home prices fell 16.6% in the three months that ended in September from the same period a year earlier.
But the drop varied greatly from region to region, with the Western U.S. hit hardest.
The latest Standard & Poor’s/Case-Shiller U.S. national index of home prices, released Tuesday, showed the Los Angeles area posting some of the steepest price declines in the nation, behind only the Phoenix, Las Vegas, San Francisco and Miami metropolitan areas.
Those cities have seen price declines of roughly 30% since last year, about 10 times the annual rate of decline in the Charlotte, N.C., and Dallas areas.
“There’s been a real shift in the past few months,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s, with prices in California, Nevada, Arizona and Florida cities tumbling while other regions decline gradually.
Blitzer said metro areas in much of the nation could be called “not disaster cases.” There “you’re seeing declines of 10%, 12%, not 25% or more,” he said.
In some areas, prices simply did not soar as high during the boom years. Charlotte home prices rose 35% from 2000 to their 2007 peak, according to the index. In Los Angeles, the home price climbed 174% from 2000 to its peak in 2006, the index shows.
Not surprisingly, “the biggest falls have been in the biggest bubble areas,” said Dean Baker, an economist at the Center for Economic and Policy Research in Washington, D.C.
Home prices are generally localized, but declining prices in one area can affect another in some cases. For instance, if retirees or others planning to move from a higher-priced region to a lower-priced area are hit by falling prices in their home area, they will have less to spend on the home they would buy in the new area.
Baker said such regional interplay could be adding to price declines in Las Vegas and Phoenix, which have been popular destinations for relocating Californians.
Home prices for the Case-Shiller U.S. national index, which covers the entire nation and is compiled quarterly, dropped to 2004 levels. The national index is down 21% from its 2006 peak
Phoenix posted the largest year-to-year decline, 31.9%, followed by Las Vegas, with a 31.3% drop, and San Francisco, which saw prices fall 29.5% from the same quarter a year earlier.
The L.A. area, which includes Orange County, dropped 27.6%, while San Diego’s decline in the third quarter was 26.3% from last year.
Dallas and Charlotte posted the smallest annual declines, 3.5% and 2.7% respectively.
Within the Los Angeles area, higher-priced homes have declined at a slower pace than the bottom third of the market. Prices for the top third of homes -- those priced at $750,000 and above -- have fallen 22.7% from their peak in 2006.
Top-tier L.A. area prices were down 20% in September from the same month last year.
The bottom third has taken a 44% hit from its 2006 peak levels. In September, lowest-tier prices in the Los Angeles area fell 39% from a year earlier.
The greater percentage of foreclosures at the lower end of the market accounts for much of the discrepancy.
But Baker said the top end of the market tended to be slower to correct after a bubble, and that greater declines were likely to come for higher-priced Los Angeles area homes.
That’s because demand will drop for higher-priced homes when buyers can get dramatically more house for their money in a lower-priced area. Buyers trading up to higher-priced areas will also have less to spend if they had to sell their previous home for a lesser amount, Baker said.
The correlation “may not be one-to-one,” Baker said, explaining that the high end won’t necessarily eventually drop more than 40% from its peak, but “you can’t have the bottom fall out of one end of the market and leave the top unaffected.”
The Case-Shiller index compares the latest sales of detached houses with previous sales, and accounts for factors such as remodeling that might affect a house’s sale price over time.
From those data, an index score is created to show price changes. An index score of 100 reflects January 2000 prices. The third-quarter index score for the U.S. was 150.4. The Los Angeles score, which is calculated monthly, was 184.54 for September.
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