National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.
"Despite improvements in the overall economy, housing continues to drift lower and weaker," said David Blitzer, spokesman for S&P.
And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report's release.
"There's a substantial risk of home prices falling another 15%, 20% or 25% more," he said.
Shiller cited a few reasons for his bearish stance. The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.
There's also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.
... the Census Bureau announced that new residential sales dropped 12.6% over a mild bump upward in December, down to a seasonally-adjusted annual rate of 284,000 units. That number barely avoids the low-water mark reached in October 2010 of 280,000 units, which was itself the lowest such figure in the entire historical run of the data, which goes back to 1963...The actual number of houses sold in January, not seasonally adjusted, was 19,000 — which is the lowest number in a month in the entire 48-year history of sales tracking. That beats the monthly low hit in November by 1,000, and is 3,000 less than December.