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Home Prices Continue Their Descent

[Jan 27, 2009.]


The U.S. housing market has continued to suffer at the hands of rising foreclosures, increased unemployment, and lack of consumer confidence. Home prices in 20 major cities in the United States declined at the fastest pace ever in the past year.

Home prices in a 20-city sample plunged a record 18.2% in November 2008, on a year-over-year basis in, according to the S&P / Case-Shiller U.S. National Home Price survey (pdf). The index has fallen every month since January 2007. Home prices fell 18% in October, 17.4% in September, and 16.6% in August, each on a year-over-year basis.

The Case-Shiller index compares the latest sales of detached houses with previous sales, and accounts for factors such as remodeling that might affect a house's sale price over time.

The hardest hit metro areas were Phoenix, Las Vegas, and San Francisco - all experiencing over 30 percent declines in value from November of 2007 to November of 2008.

This is not good news for those homeowners who either have a home equity line of credit or are looking to obtain a new home equity loan or line of credit.

Those that already have an equity line of credit will be a continued risk of having the line amount reduced or the current balance frozen. Those looking for new loans will quickly learn that their borrowing power has been dramatically reduced as a result of the drop in home prices.

One of the primary underwriting criteria banks use when lending in the form of equity loans and lines is the value of your home relative to how much you owe on your primary mortgage. As values have continued to drop, the perceived equity you have in your home, as been dropping.

Banks, like most economists, are unsure of when we will hit the bottom and begin to recover. As a result, they must be conservative when lending to homeowners and assume there may be additional deterioration in home values.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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