‘Double-Dip’ Housing Plunge Threatens Economy

Tuesday, 31 May 2011 12:21 PM

By Newsmax Wires

Home prices in 20 U.S. cities dropped in March to the
lowest level since 2003, showing housing remains mired in a slump and is
threatening to hurt the nation’s economic recovery.The
S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent from
March 2010, the biggest year-over-year decline since November 2009, the group
said today in New York. In the first quarter, housing prices dropped 4.2
percent, a new low that is likely to threaten the economic recovery.

All
of this data comes days after two disappointing economic reports. Last week,
worsening gross domestic product and initial unemployment claims numbers topped
what economists had expected. And the slumping housing data arrives just days
before the Labor Department releases its monthly report on jobs.

The
bleak data is increasingly worrisome for analysts, who say economic growth
should have picked up more by now. Higher food and commodity prices are cutting
into economic output by dampening consumer spending.

More and more
forecasters, meanwhile, are slashing their second-quarter growth predictions,
The Wall Street Journal reports.

JPMorgan Chase & Co. economists cut
their growth estimate to 2.5 percent from 3 percent, while Bank of America
Merrill Lynch economists cut theirs to 2 percent from 2.8 percent and Deutsche
Bank went to 3.2 percent from 3.7 percent.

“It’s very hard to generate a
rapid recovery when rapid recoveries are historically driven by housing and the
consumer,” says Nigel Gault, an economist at IHS Global Insight, tells the
Journal.

Annualized, inflation-adjusted growth won’t break 3 percent in
the coming quarters, Gault predicts, which means it will be too slow to make a
meaningful dent in unemployment.

Foreclosures Depress
Prices

A backlog of foreclosures, along with the fact that more are
on the way, means home prices may stay depressed, dissuading builders from
taking on new-home construction projects. Unemployment at 9 percent and stricter
lending conditions are signs that any recovery in housing may take
years.

“With the foreclosure pipeline still full to bursting, it’s hard
to see this downward pressure on prices abating,” said Paul Dales, a senior U.S.
economist at Capital Economics Ltd. in Toronto. “I wouldn’t be surprised to see
prices continue to fall this year and maybe into next year.”

Housing’s
uptick in 2009 and 2010 can be attributed to the first-time homebuyer tax
credit, economists say. Without it, there is no apparent housing market
stabilization of home prices. And that could propel the country into a tougher
economic recovery.

Economists surveyed by Bloomberg had forecast a 3.4
percent decline in housing from a year earlier, according to the median forecast
of 27 economists surveyed. Estimates ranged from declines of 4.9 percent to 2.8
percent.

Nationally, prices decreased 5.1 percent in the first quarter
from the same time in 2010, and were down 4.2 percent from the previous three
months, the biggest one-quarter decrease since the first three months of 2009.
At 125.41, the index was the lowest since the second quarter of
2002.

“This month’s report is marked by the confirmation of a double dip
in home prices across much of the nation,” said David Blitzer, chairman of the
Case-Shiller index committee at S&P.

Further declines in home prices
are likely to constrain the consumer spending that makes up 70 percent of the
economy, as homeowners feel less wealthy and have little home equity to borrow
against.

Previous reports this month showed that the housing market
remains depressed as the broader economy slows.

Pending sales of
previously owned homes plunged 12 percent in April from the prior month, the
National Association of Realtors said last week. The gauge measures contract
signings, which typically lead closings by one to two months, a sign existing
purchases will slow.

Stock Futures Hold
Gains

Stock-index futures held earlier gains after the report amid
speculation the European Union will pledge further aid to Greece. The contract
on the Standard & Poor’s 500 Index maturing in June rose 0.9 percent to
1,342 at 9:18 a.m. in New York.

Home prices in the 20 cities fell 0.2
percent in March from the previous month after adjusting for seasonal
variations, a ninth consecutive decrease. Thirteen of the 20 areas posted price
declines in March from the previous month, led by Charlotte, North Carolina, and
Minneapolis.

The year-over-year gauge provides better indications of
trends in prices, the group has said. The panel comprises Karl Case and Robert
Shiller, the economists who created the index.

Nineteen of the 20 cities
in the index showed a year-over-year decline, led by a 10 percent slump in
Minneapolis. The exception was Washington, where values climbed 4.3 percent.
Prices in 12 markets dropped to fresh lows in March from their 2006 and 2007
peaks.

Sales of previously owned homes, based on closings, fell 0.8
percent in April to a 5.05 million rate, with demand for distressed properties
accounting for 37 percent of the total, NAR said last May 19.

The
overhang of unsold housing inventory will probably remain an issue for builders
and buyers alike. CoreLogic Inc. in March estimated about 1.8 million homes were
more than 90 days delinquent, in foreclosure or bank-owned, a so-called “shadow
inventory” set to add to the unsold supply of 3.87 million previously owned
homes on the market at the end of April.

Builders are gloomy and project
demand will remain depressed into next year, Bill Wheat, chief financial officer
of D.R. Horton Inc., told a housing conference in New York on May 11.

“We
still see housing demand at very weak levels,” Wheat said. “It could still be a
struggle in 2012.”

 

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