May 29, 2007 - Home Prices Drop, Construction Slows

The old laws of supply and demand continued to take their toll on the nation’s housing industry:

Home prices fell 1.4 percent in the first quarter compared to a year earlier, the first decline year-over-year since 1991, according the S&P/Case-Shiller home price index released today.

A year ago, the 20-city index reported prices rising 11 percent. Since then, home prices have fallen in 13 of the 20 cities, with Detroit and San Diego down the most at 8 percent and 6 percent, respectively. Prices in Phoenix and Las Vegas have fallen the most from their peaks.

The Case-Shiller index tracks multiple sales of the same property. As a result, it’s considered a better gauge than either the median sales-price data released by the Commerce Department or National Association of Realtors.
It could take another four years for new home construction to be back at last year’s levels, according David Seiders, chief economist for the National Association of Home Builders.

“We’ve fallen way below trend because we soared way above trend during boom times, Seiders said in a interview with Bloomberg. “The upswing will be relatively slow, unlike earlier times.”

Seiders puts the benchmark for recovery at 1.85 million housing starts. That compares to an annual rate of 1.53 million starts the Commerce Department reported in April. The height of the recent housing boom peaked at 2.29 million starts in January 2006.