Home Prices Decline in 3rd Quarter

U.S. home prices fell in the third quarter of the year, as the housing market cooled off following the end of the homebuyer tax credit, according to two major reports released today.

The Standard & Poor’s/Case-Shiller U.S. Home Price Index declined by 2.0 percent in the third quarter, following a 4.7 percent gain in the second. An almost identical decline was reported by Freddie Mac, whose Conventional Mortgage Home Price Index fell by 1.9 percent in the third quarter.
 
Both also reported that prices were down  on an annual basis compared to the third quarter of 2009, with Standard & Poor’s showing a 1.5 percent drop, while Freddie Mac reported a larger 3.1 percent decline.

“Home sales in the third quarter declined from the second quarter, in part because of the expiration of the home-buyer tax credit,” said Amy Crews Cutts, deputy chief economist for Freddie Mac. “Although sales rose in August and September, the net decline over the quarter was still large.  We’re now seeing the effect of the sales slow-down in home purchase prices.”

David Blitzer, chair of the Standard & Poor’s index committee, said the market’s problems go even deeper.

“While some of the bad numbers may reflect the end of the government’s tax incentive for first time homebuyers, there are other problems weighing on the housing market.” Blitzer said. “The national economy is certainly the number one issue for housing. Additionally, there is a large supply of houses on the market and further, hidden, supply due to delinquent mortgages, pending foreclosures or vacant homes.”

He noted that with new home construction is running at about half the pace needed to meet normal demand, a sustained recovery could be a ways off.  Cutts, however, was somewhat more optimistic.

“The past three quarters we’ve seen encouraging numbers in delinquency trends as reported by the Mortgage Bankers Association, though the delinquency rates remain high,” she said. “Our forecast is for economic conditions to continue to improve, which should lower delinquency rates further over the coming year and relieve some of the downward pressure on home prices.”

Both surveys are based on actual purchase prices reported in repeat transactions involving individual properties, so price changes over time can be tracked.