Home prices dropped in 24 of 25 U.S. metropolitan areas in July from a year earlier, led by declines in Las Vegas and the coastal cities of California, as foreclosures depressed property prices.
Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.
``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''
U.S. foreclosures rose to a record 2.75 percent of all mortgages in the second quarter, according to the Washington- based Mortgage Bankers Association. Foreclosed houses tend to sell at a discount of about 20 percent, according to research by Lehman Brothers Holdings Inc. Those discounts are weighing on prices throughout the country, Radar Logic said.
This confirms the information from the latest Case Shiller news release:
Data through July 2008, released today by Standard & Poor's for its S&P/Case-Shiller(1) Home Price Indices, the leading measure of U.S. home prices, shows continued record declines and a continuation in the trend of double digit declines across many cities in the prices of existing single family homes across the United States.
The 10-City Composite and the 20-City Composite Home Price Indices reached new record annual declines of 17.5% and 16.3%, respectively. The 10-City level marked its 10th consecutive monthly report of a record decline, beginning with data reported for October 2007. As depicted on the chart above, during the 1990-92 cycle the record low was -6.3%. While the annual returns of the two indices continue to reach record lows, the pace of the decline has slowed, particularly over the last three months. For the three months of May thru July, home prices cumulatively fell about 2.2%; whereas for the three months of February thru April, and November 2007 thru January, the cumulative rates of decline were closer to 6.0-6.5%.
This is the central problem with the bail-out proposal. At the heart of the economy's problems lie housing prices. As prices drop in value more and more loans wind-up "underwater", meaning the mortgage is worth more than the property. This encourages people to stop paying their mortgage, leading to an increase in foreclosures (which the first article notes are at a record). Banks take these houses and either put them on their balance sheet or sell them at a discount. Either way, the underlying mortgage is not completely paid off, causing the mortgage holder to lose money. Simply put, the only way to stop this problem is to stop home prices from declining. And that's not going to happen anytime soon.
