Nearly two years since the recession officially ended, home sale prices in major U.S. cities dropped to their lowest level since the bubble burst in 2006, according to fresh data released on Tuesday. The report confirms that the housing market's "double dip" is at hand, and many economists say prices will continue to decline through the rest of this year.
Home values dropped from February to March in 18 of the 20 cities tracked by the Standard & Poor's/Case-Shiller index, which is widely considered the leading gauge of the housing market's health. Washington D.C. was the only city in the index that showed year-over-year improvement since March 2010.
The nationwide home price index fell by 4.2 percent in the first quarter of 2011 and March marks the eighth straight month of decline. Twelve cities fell to their lowest levels since the 2006 crash, with Minneapolis experiencing the steepest year-over-year decline: Area prices were 10 percent lower than March last year.
"Home prices continue on their downward spiral with no relief in sight," said David M. Blitzer, Chairman of the Index Committee at S&P Indices. Blitzer attributed the rebound in home prices in 2009 and 2010 primarily to the first-time homebuyer credit, but said effect of that credit have long worn off. "Excluding the results of that policy, there has been no recovery or even stabilization in home prices during or after the recent recession."
Economists point to a constellation of critical factors that are keeping home prices at rock bottom: On the one hand there is an overabundance of supply from the bulk of unsold homes still on the market, plus millions of distressed homes caught up in the massive delays in processing foreclosure paperwork. According to a report from March, 13 percent of all U.S. homes are now vacant. On the other hand, high unemployment and a diminishing appetite among Americans to buy homes is keeping demand too low to raise home prices up.
With prices so low, it would seem to be an ideal time for Americans to start buying real estate again. But for the most part, they have not. Many economists think this shows a fundamental shift in Americans' attitudes towards home ownership.
"This recession and financial crisis had their origins in the biggest real estate price bubble in this nation's history. People are still reeling from it. They are not so clear anymore that homes are the best investment," Robert Shiller, a Yale economist and co-creator of the Case-Shiller home price index wrote in an email. "The big thing is the change in attitude."
And when it comes to Americans' attitude about the housing market, things have gone from bad to worse.
According to a recent survey, 54 percent of American adults said they don't expect the housing market to recover before 2014. Last November, only 34 percent of those surveyed said it would take until 2014.
"This is how I think about it: Those people who want to buy a home can't. And those people that can buy a home won't," said Paul Dales, an economist at Capital Economics. "Because why buy a property that's going to fall in price?"
A widely circulated email from Capital Economics pointed to one other data point revealed by Case-Shiller's latest index:
"Prices have now fallen by more than they did during the Great Depression. On that occasion, the peak in prices was not regained until 19 years after they first fell."