After rebounding in 2009 and 2010, national home prices have sagged to another low in what housing experts are calling a "double dip."
Falling for the eight consecutive month, the S&P/Case-Shiller Home Price Index reveals that home prices in major metro areas are back to mid-2002 levels, with no end to the declines in sight. The 20-city National Index dropped 4.2 percent in the first quarter after having fallen 3.6 percent in the final quarter of 2010. In Atlanta, Cleveland, Detroit and Las Vegas average home prices tumbled below January 2000 levels.
Daniel Martin, an economist with the Economist Intelligence Unit, said excess supply has persisted since the construction boom earlier last decade that culminated when home prices collapsed in 2006. He estimates that 1.5 million houses are sitting vacant across the country, or 9.2 months worth of housing supply. A normal market would have about five months of supply.
"There are not many people with the money or the ability to borrow to buy a house," he said. "What we have is very weak demand, a heck of a lot of supply, and that probably means house prices will continue falling."
Also contributing to the excess supply is the large number of foreclosures in the real estate market, according to Jim Pearce, vice president in the Bryan, Texas office of Welch Consulting.
Last year, a record 2.9 million properties received foreclosure filings. Nevada, Arizona and California had the highest state foreclosure rates in April, according to RealtyTrac.
"The lending standards have gotten fairly tight. In particular, appraisers have to be careful how they appraise loans," Pearce said. "If you're in an environment of falling prices, the concern is that the collateral value in 16 months may not be what it is expected to be. It's kind of a vicious circle in that respect."
David Blitzer, chairman of the Index Committee at S&P Indices, said this month's Case-Shiller report confirmed a double-dip in home prices across the country.
While Blitzer said home prices have continued on their "downward spiral with no relief in sight," Martin said he expects prices to bottom out in second half of the year and fully recover in the next five to six years.
Of the 20 cities in the index, prices in 19 cities decreased over the last year. Washington, D.C., was the only city in which home prices increased on a monthly and annual basis – by a modest 1.1 percent and 4.3 percent respectively. Prices in Seattle rose 0.1 percent in March, but were down 7.5 percent from a year ago.
Blitzer said the rebound in prices in 2009 and 2010 was mostly attributable to the first-time home buyers tax credit. The Housing and Economic Recovery Act of 2008 established a tax credit worth up to $7,500 for first-time buyers that year. The American Recovery and Reinvestment Act of 2009 then expanded that credit to $8,000 for buyers.
"While last year saw signs of an economic recovery, the most recent data do not point to renewed gains," Blitzer said.