Home Prices Continue To Fall

[Dec 30, 2008.]

 

According to CNN.com, the S&P/Case Shiller Home Price Index declined 18 percent in October from a year earlier. Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

"The bear market continues; home prices are back to their March 2004 levels," says David Blitzer, Chairman of the Index Committee at Standard & Poor's.

U.S. Consumer Confidence numbers were also just released, as reported on WSJ.com, to an all time low.

The further erosion of the index "reflects the rapid and steep deterioration of economic conditions that occurred in the fourth quarter of 2008," said Lynn Franco, director of The Conference Board Consumer Research Center.

One of the primary factors that seems to be driving down home prices is the oversupply of distressed homes on the market. Those homes tend to sell well below market value as the owners try to quickly unload them. When enough homes are sold at a discount, the surrounding homes feel the downward pressure on prices.

Tighter lending guidelines are also keeping some buyers on the sidelines. In recent years, first time home buyers helped to fuel demand, however, many are now unable to come up with the required down payments or meet other lender requirements. The reduction in active and able buyers also works to suppress home sales.

For those consumers not selling their homes, this is still important news. Obtaining and keeping home equity lines of credit continues to get more difficult. Lenders, fearful that underlying collateral backing a home equity line of credit is losing value, may react by freezing or reducing credit lines. Those looking to take out new home equity lines of credit may be surprised to learn how much equity the bank believes is available to borrow against.

 

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.