Home prices in the U.S. dropped last quarter for the first time in almost 16 years, as 13 out of 20 cities reported declines in March.
The value of a house dropped 1.4 percent in the first three months of the year from the same period in 2006, according to a report today by S&P/Case-Shiller. Prices last fell during the third quarter of 1991.
The retreat may deter owners from tapping into home equity for extra cash, economists said. Combined with record gasoline prices, lower home prices raise concern consumer spending, which accounts for more than two-thirds of the economy, will slow.
``We don't see a big rebound in economic growth,'' said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis.
For anyone who is calling a bottom to the housing market, this news essentially blows you out of the water. There is no good news coming from this part of the economy right now. Considering the massive overhang in inventory, I don't expect this trend to stop in the near future.
Compounding the problem is the sentiment of industry insiders who don't see a rebound in homebuilding until 2011:
New home construction in the U.S. may take until 2011 to return to last year's level, said David Seiders, chief economist for the National Association of Home Builders in Washington.
Monthly construction starts would need to jump by 21 percent to reach Seiders's benchmark for full recovery, which is 1.85 million. There were 1.53 million in April, the Commerce Department said. At the height of the five-year housing boom in January 2006, construction began on 2.29 million homes.
``We've fallen way below trend because we soared way above trend during boom times,'' Seiders said in an interview. ``The upswing will be relatively slow, unlike earlier cycles.''
The inventory of unsold homes is the largest since the Chicago-based National Association of Realtors started counting them in 1999 and house prices have suffered the steepest drop since the Great Depression, according to the realtors' group. Defaults and foreclosures also may rise as about $650 billion of loans to subprime borrowers, those with poor or limited credit histories, reset at higher interest rates by 2009.
The article points out a very important point: we're still working our way through the ARMs resets, and will be for the remainder of this year. I would guess the fallout from that part of the market will continue for at least another 6 months, and probably longer.