The drop in home values isn’t over yet.
Though falling house prices took a bit of a breather in many parts of the country in April, analysts who follow the housing market say it’s too soon to say they have hit bottom.
The latest monthly read on home prices from the Standard & Poor's/Case-Shiller home-price index, released Tuesday, was mixed at best. The index of prices in 20 cities was up 0.7 percent in April, the first increase since last July, but when adjusted for seasonal factors the index actually slipped 0.1 percent.
Like everything else about real estate, much depends on where you live and how much house you’re trying to buy or sell. Some regions remain mired in an ongoing price slide. While prices for middle and high-end homes have held up relatively well, house prices on the lower end of the market have been hit hardest.
The numbers also tell the story of a very uneven recovery from one region to the next. Washington, D.C., for example, saw the biggest price increases, followed by San Francisco, Atlanta and Seattle. Prices have flattened out in Los Angeles and San Diego, but six other metro areas — Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa — fell to the lowest levels in the nearly four years. Since the housing market collapsed in 2006, prices have fallen more than they did during the Great Depression.
“I would not assume it's straight up from here,” said David Blitzer, head of S&P’s index committee. “About a year ago we saw similar numbers, and those fizzled out after the summer.”
Spring is traditionally the housing industry’s best season. But a combination of weak consumer finances, falling confidence, tighter mortgage lending requirements and a huge inventory of foreclosed homes has kept a lid on sales and prices. As seasonal demand begins to fade, some economists think home prices will resume their downward trend.
“We believe that weak demand and the weight of these mortgages-gone-bad will lead to distressed sales that will eventually drag the Case-Shiller composite indexes down at least another 5 percent,” said Patrick Newport, an economist at IHS Global Insight.
Demand is also being held back by an uncertain financial outlook, as wary consumers face the prospect of continuing high unemployment and stagnating wages.
A series of downbeat economic reports last month sent consumer confidence plunging to a seven-month low in June, according to a report released Tuesday by a private research group. The Conference Board's Consumer Confidence Index slipped to 58.5 in June — down from a revised 61.7 in May, when it dropped nearly six points.
"Given the combination of uneasiness about the economic outlook and future earnings, consumers are likely to continue weighing their spending decisions quite carefully," Lynn Franco, director of the Conference Board's Consumer Research Center, said in a statement.
Consumers’ worsening mood is based on more than bad headlines. With gasoline and food prices higher than they were a year ago, wages have barely budged, further stretching household budgets. On Monday, the government reported that consumer spending in May fell to the lowest levels in 20 months as after-tax incomes edged up just 0.1 percent.
After surging to an average of $4 a gallon, falling gasoline prices have begun to provide some relief for household budgets. But rising food prices are still putting the squeeze on consumer paychecks.
“We’re starting to see the lagging impacts of grocery price increases that were announced in the first quarter,” said Brian Sozzi, a retail industry analyst at Wall Street Strategies. “When consumers are hit with increased grocery prices, they have to make adjustments. I see it every week. When consumers get paid the aisles are packed. On the weeks they don’t get paid, it looks like a barren wasteland.”
With consumers on the lower end of the economic ladder living paycheck to paycheck, demand at the lower end of the housing market has been weakest. First-time home buyers shopping for a starter home are also finding it tough to get their mortgage applications approved.
The result is a much sharper price drop for houses in the lower tier of the market, where prices have fallen 45 percent since 2007, according to Case-Shiller data. That compares with price drops of 35 percent in the middle tier and 25 percent in the upper tier.
Lower-tier prices will continue to feel the biggest downward pressure for two reasons, according to Paul Dales, a senior U.S. economist at Capital Economics.
First, there are no signs that credit criteria for first-time buyers are loosening, he said. They may have an even harder time getting a loan if proposed new lending guidelines are approved, as the guidelines require more lenders to obtain a down payment of 20 percent or more.
Second, a large portion of the unsold inventory of foreclosed houses now pushing prices lower was purchased with sub-prime loans on homes in the bottom tier.
“That means the downward pressure on prices from forced foreclosed sales will be greater at the low end of the market,” Dales said.