Home prices' 4.5% drop is largest dip in 20 years
11/28/2007NEW YORK - U.S. home prices fell 4.5 percent in the third quarter from a year earlier, the sharpest drop since Standard & Poor's began its nationwide housing index in 1987 and another sign that the housing slump is far from over, the research group said yesterday.
One of the index's creators also predicted that there's a significant chance of a recession as the economy contends with falling housing prices, spiking foreclosures, and turmoil in the financial markets.
"Over 50 percent," said MacroMarkets LLC Chief Economist Robert Shiller, giving his odds for a recession. Other economists have put the chance of recession at one in three.
"We're in the aftermath of the biggest housing boom in history, so how do we use historical data to judge the outcome?" he said. "We're out of the range of the normal variation in the data and I take that as very significant."
The S&P/Case-Shiller quarterly index tracks existing single-family home prices across the U.S. versus a year ago.
The index also showed that prices fell 1.7 percent from the previous three-month period, the largest quarter-to-quarter decline in the index's history.
After 13 years of rising home values - with the greatest increases occurring in the first part of this decade - the housing market has started to unravel, spreading from Main Street to Wall Street.
Declines in housing prices have kept homeowners, especially those with riskier mortgages and spotty credit, from refinancing, sending them into default and foreclosure at a quickening pace. More foreclosed properties have added to an already ballooning inventory of homes on the market, further depressing values.
Investors holding securities backed by mortgages have taken billions in losses as they rewrite the value of defaulting assets. Spooked, they have stopped funding mortgages, hurting lenders' ability to issue new loans and shrinking demand.