S&P Case-Shiller Home Price Index Shows Record National Home Price Decline in 2nd Quarter

The national S&P Case-Shiller home price index showed a -3.2% YoY decline in the second quarter of 2007 versus the 2nd quarter of 2006. The index turned negative in the first quarter of 2007 when it fell -1.6% YoY. As recently as the second quarter of 2006 the index was still showing annual growth of 7.5% YoY. The Case-Shiller index includes homes at all price levels, as opposed to the OFHEO index which only studies conforming mortgages which misses the higher end of the market, and is the preferred home price appreciation index for many economists.

Looking at just the monthly index of 20 large metropolitan areas, the Case-Shiller index shows as of June 2007 that prices in these areas are down -3.5% YoY (consensus -3.3% YoY). This is the largest decline in the 20 city index since it was begun in 2001, and an accelerating decline rate from the -2.9% YoY figure observed in May. Because the figures are not seasonally adjusted, most economists prefer watching 12 month changes.

Fifteen of the 20 cities surveyed showed a drop in home prices year-over-year in June. Detroit led the decline with a drop of 11% YoY. The Washington, DC metro area is calculated to have seen prices drop 7% YoY. The five cities that still showed appreciation are Seattle, Charlotte, Atlanta, Dallas, and Portland. The smaller 10 city index, which is focused on cities which have had a larger bubble in prices, fell -4.1% YoY. Of concern are signs that the home price depreciation seems to be accelerating in Florida and California.

Many economists are now looking for national home prices to decline by 5% or more by the end of 2007, and expect the decline to continue into at least 2008. The record inventory level of existing homes for sale, reported yesterday, indicates that homeowners are less inclined to pull their houses off the market in hopes of a quick recovery in home values.

Market reaction was muted to these figures as bad news was expected.