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Home prices plummet in big U.S. cities

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POSTED: February 23, 2011 11:22 a.m.

WASHINGTON — Home prices are hitting new depths in most major U.S. cities and are expected to fall further over the next six months.
In a majority of metro areas tracked by Standard & Poor’s/Case-Shiller, prices have fallen to their lowest points since the housing bubble burst.
High unemployment, stricter lending rules and fears that prices will continue to fall are among the reasons why few people are buying homes. A rising number of foreclosures are also weighing down prices. And as more people get stuck in depreciating homes, housing could slow the economy.
Across the country, the housing industry is recovering unevenly. Risky lending was more widespread in places like Florida, Arizona and Nevada, leading to more foreclosures and sharper price declines.
Homes in more established areas — those that had little room to build on during the housing boom — are doing a better job holding their value. Coastal cities in California and Northeast are seeing much smaller price declines. In Washington and San Diego, home prices rose over the past year.
Still, many people who want to buy can’t. Nearly 25 percent of households cannot move because they owe more on their mortgage than their home is worth, according to Capital Economics. An additional 25 percent can’t qualify for a new mortgage because selling their homes would leave them with too little money for a down payment.
“We’re likely to see new lows hit across most major markets at some point in 2011,” said Mark Vitner, a senior economist at Wells Fargo Securities. “We’re afraid of all this turning into another vicious cycle.”
Housing prices in all but one of the 20 cities tracked by Standard & Poor’s/Case Shiller fell in December from November. And the overall index declined for the sixth straight month. Washington was the only metro area where prices rose month to month.
Eleven of the markets hit their lowest point since the housing bubble burst in 2006 and 2007: Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Seattle, Tampa, Fla., and Portland, Ore.
The housing sector is struggling even while much of the economy is recovering slowly but steadily. The latest evidence of the divide came Tuesday when the Conference Board said its Consumer Confidence Index rose in February to its highest point in three years. The report suggested that many people are more hopeful about hiring and income gains over the next six months.
By contrast, the outlook for housing this year is dim. Construction of new homes is on pace for little more than half the million units a year that economists consider to be healthy. The number of vacant homes is near a record high.
Some of the worst declines in home prices are in cities hit hardest by high unemployment and foreclosures. A home that sold for $250,000 in Detroit in 2000, for example, now sells for roughly $163,150, according to the housing report. The unemployment rate there was 11.1 percent.
One in 24 Detroit-area homes with a mortgage was at risk of foreclosure last year, according to foreclosure tracker RealtyTrac Inc. — the fifth highest rate among major cities.
Tougher lending rules have scared away some potential home-buyers. Banks have been hesitant to extend new credit. Many are demanding that buyers put down a larger down payment. During the housing boom, people in many cases were able to buy homes with little or no money down.
In many depressed markets, a significant percentage of buyers are really investors and private equity firms looking to cash in on cheap real estate, Realtors say.
The federal government is trying to deter this practice, at least in cities hit hardest by foreclosures.

 

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