http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/29/MNK810DNII.DTL
James Temple, Chronicle Staff Writer
Wednesday, April 30, 2008
Low-priced homes led plunge. Chronicle Graphic The U.S. housing slump,
as reflected by these signs on a ...
(04-29) 10:11 PDT SAN FRANCISCO -- Like a brick falling from the top
of the Transamerica Pyramid, national and local home prices are
rapidly accelerating on their way down, crushing hopes of an imminent
turnaround.
The cost of a typical Bay Area home plunged 17.2 percent year-over-
year in February, compared with 13.2 percent in January and 10.8 in
December, according to an index of real estate values published by New
York credit rating agency Standard & Poor's. Across the nation, the
S&P/Case-Shiller 10-City Composite index covering major U.S. markets
followed a similar trajectory, falling 13.6 percent in February, 11.4
percent in January and 9.8 percent in December. On a month-over-month
basis, the national numbers have fallen or stayed the same for at
least the last six months.
The indexes represent the overall price trend in specific metropolitan
areas. Many of the cities or neighborhoods within these regions
performed far better or far worse. San Francisco, for instance, eked
out a median price increase in March, but the rare positive examples
were more than offset by the tumbling values in outlying areas, like
eastern Contra Costa County.
Decreases tend to slow before stopping, so the quickening pace of
these broader price declines suggests the bottom of the market remains
far off, industry observers say.
"Prices have a lot of room to fall," said Patrick Newport, an
economist with Waltham, Mass., research firm Global Insight Inc. "We
could see some really big drops."
Further decline expected
Coupled with a Census Bureau report on Sunday that found the inventory
of vacant and for-sale homes rose to an all-time record of 2.9
percent, the S&P/Case-Shiller study means U.S. home values will
decline by at least an additional 10 percent and possibly by much
more, Newport said.
It's a stark assessment for a housing market that already has been
unraveling for two years, sending national and local prices down 16
percent and 25 percent from their peaks so far. The slowdown morphed
into a meltdown last summer as resetting mortgages and falling home
values brought waves of defaults and foreclosures and an international
liquidity crisis.
Seventeen of the 20 major metropolitan areas tracked by S&P/ Case-
Shiller posted the biggest annual declines in at least 18 years, as
far back as the data goes. Las Vegas, Miami and Phoenix reported the
steepest drops, 22.8 percent, 21.7 percent and 20.8 percent,
respectively.
The San Francisco region, which includes Alameda, Contra Costa, Marin,
San Francisco and San Mateo counties, saw the sixth highest annual
drop and the biggest month-over-month decline, 5 percent.
Connection to other areas
Stephen Levy, senior economist at the Center for Continuing Study of
the California Economy in Palo Alto, said the early, enormous price
declines in areas like Stockton and Fresno are filtering into the Bay
Area.
"Even though we don't have the high foreclosure rates, housing is a
market and prices here are connected to prices in adjoining areas," he
said.
Another major factor driving down local prices is financing, he said.
Tightening lending standards and larger required down payments are
inhibiting people's ability to afford the region's high-priced homes.
Michael Carney, director of the Real Estate Research Council of
Northern California, said he was "shocked" that the Bay Area number
fell as far as it did, but echoed Newport in saying the accelerating
decline means the worst is to come.
The regional trend is skewed by the outer areas, such as Antioch and
Pittsburg, where there are high levels of foreclosures and prices
declining by as much as 25 percent, said Ken Rosen, chairman of the
Fisher Center for Real Estate and Urban Economics at UC Berkeley.
Prices in the core of the Bay Area, including San Francisco, Silicon
Valley and Marin, are down 6 percent at most, he said.
Examples of variation
S&P/Case-Shiller does acknowledge this variation, noting that low-
priced homes, which saw the biggest run-up since 2000 and tend to be
located in the exurbs, have fared the worst in the downturn.
Properties priced below $513,218 plummeted about 33 percent since
February 2006. In contrast, medium-priced houses, between $513,218 and
$756,420, declined 22 percent while high-priced homes, above $756,420,
fell just 6.8 percent.
"The low-price homes tend to be where there's more speculation and
dubious mortgages," said David Blitzer, chairman of Standard & Poor's
index committee. "The farther they went up, the harder they fell."
S&P/Case-Shiller assigned each metropolitan area it tracks a base
value of 100 as of January 2000. That figure fluctuates with market
value, so an index of 150 translates to 50 percent real dollar price
appreciation.
The San Francisco index was at 174.54 in February, meaning despite the
recent turmoil, values are up nearly 75 percent from eight years ago.
Many real estate experts consider the S&P/Case-Shiller indexes and
others like them more accurate gauges of real estate trends than the
median price approach used by other groups. Because they track the
value only of homes that have traded hands at least twice, the indexes
chart the actual increase or decrease in specific homes. Median
surveys compare prices for homes sold in one month to an entirely
different set sold in the next, meaning they can be artificially
distorted when a higher proportion of homes sell in the lower- or
higher-priced tier in a given period.
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