Three straight months of home-price declines in the biggest U.S. cities showed that foreclosures remain a significant drag on a housing market that is entering its fifth year of deterioration.
Nineteen of the 20 metropolitan areas tracked by the Standard & Poor's/Case-Shiller index fell in November — the second consecutive month that every metro area other than Phoenix was down and the third consecutive month that the overall index has declined. The index fell 1.3% from October to November and 3.7% from November 2010.
Home prices typically fall during the winter, when investors looking for lower-priced homes make up a larger share of the market. In addition, most home-buying is done in the spring and summer. Nevertheless, economists viewed the continued home-price weakness as a sign that any recovery this year would be anemic.
"We have more house-price declines coming," said Mark Zandi, chief economist at Moody's Analytics. "I'm more optimistic about improvement in sales and construction figures, but I think prices will fall further this year, largely because we still have to work through the mountain of foreclosed properties."
Karl E. Case, a Wellesley College professor and co-creator of the index, said the nation's housing market could be approaching a "rocky bottom," meaning the big drops in home values characteristic of earlier in the crisis are perhaps over, but any improvements would come in fits and starts. The huge percentage of American homeowners who owe more on their properties than those homes are worth remains the biggest barrier to recovery, Case said.
About 1 in 5 borrowers are underwater, according to the most recent data from Santa Ana firm CoreLogic. That slice of the market is important because these property owners will continue to enter the market and put downward pressure on prices whenever demand for homes picks up, Case said.
"There are still going to be problems getting people out of these negative-equity positions," Case said. "We won't know the effect until it's over; it could drag out."
The Case-Shiller index, created by economists Case and Robert J. Shiller, is widely considered the most reliable read on home values. The housing 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.
U.S. home prices are back to their mid-2003 levels, according to the 20-city index. They are down 32.9% from their peak, in July 2006.
Values hit bottom in April 2009 during the depths of the financial crisis and briefly dipped below that threshold in March. Prices began gaining ground again last year as the spring and summer selling season picked up.
With three consecutive months of decline, prices are again poised to dip below that post-crisis low, with the 20-city index hovering only 0.6% above the "double-dip" territory as defined by S&P/Case-Shiller.
"We will probably see some decline in nationwide prices, not a plunge, but maybe 4%," said Dean Baker, co-director of the Center for Economic and Policy Research. "There will be a lot of regional variation, but I think the overall trend is still downward."
Atlanta continued to show the poorest price performance, posting a new index low in November. That city was down 2.5% after dropping 5% in October, 5.9% in September and 2.4% in August. Las Vegas, Seattle and Tampa, Fla., also all reached new lows in November.
In Los Angeles, prices were down 1% in November after falling 1.5% the month before. Year over year, L.A. prices were down 5.4.%.The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak and the foreclosure rates of many cities are among the nation's highest.
The share of distressed properties for sale in each area tracked by the index appears to be playing a significant role in how those markets are doing.
After being hit hard by foreclosures earlier in the crisis, Phoenix has posted home-price gains in recent months as investors snapped up low-priced properties and the job market showed some improvement. Foreclosures in Phoenix accounted for 38.5% of all resale homes in November, the lowest share of the market since May 2008, according to San Diego real estate information firm DataQuick.
On the other end of the spectrum, Atlanta had the largest number of foreclosed properties for sale by government-controlled mortgage giants Fannie Mae and Freddie Mac in November, Patrick Newport, U.S. economist for IHS Global Insight, noted Tuesday, citing a Federal Reserve white paper sent to Congress last month pushing for more urgent action on housing.
Given the continued malaise in housing, the Obama administration has taken new measures to right the property market. Last week, the government announced the expansion of its signature foreclosure relief program, a new refinancing plan for borrowers and a new investigative unit that will further probe the mortgage-related abuses that caused the housing collapse.
News of the latest housing value declines came as consumer confidence in the economy turned negative in January after improving in December, according to the Conference Board's consumer confidence index. The index had increased in December but fell 3.7 points.