Home prices in 20 U.S. cities declined at the fastest rate on record in October, due to rising foreclosures and slumping sales.
The S&P/Case-Shiller index declined 18% from a year earlier — more than forecast — after dropping 17.4% in September. The index has fallen every month since January of last year.
The financial meltdown has prompted bankers to curb lending, signaling that the housing slump will persist next year. Falling property values have eroded household wealth, causing consumers to cut their spending and deepening what is projected to be the longest recession since World War II.
"We're seeing a shift to a housing market that is driven by a poor economy, rather than a housing market that's driven by oversupply," Guy Lebas, the chief economist at Janney Montgomery Scott LLC, said Tuesday. "The credit problems that hit in October exacerbated the speed of it."
The median of 21 economists' estimates compiled by Bloomberg News had called for a 17.9% October decline for the index. The projected declines ranged from 17% to 18.4%.
Prices dropped in all 20 of the cities surveyed for the index. The biggest drops were in Phoenix (33%) and Las Vegas (32%). The declines set records in 14 cities.
"The bear market continues," David Blitzer, the chairman of the index committee at Standard & Poor's Corp., said in a press release.
The declines in Atlanta, Seattle, and Portland, Ore., surpassed 10% for the first time, he said.
The index has dropped 23% since hitting a peak in 2006.
Home prices fell 2.2% from the previous month after declining 1.8% in September. Six cities — Atlanta, Charlotte, Detroit, Minneapolis, Tampa, and Washington — posted the largest one-month drop on record in October. The figures are not adjusted for seasonal effects, so economists prefer to focus on year-over-year changes.
Other housing reports this month have shown property values are deteriorating even faster as foreclosures climb. The National Association of Realtors said last week that home resales dropped last month, and that the median home price fell 13% from a year earlier, the most since records began in 1968.
Foreclosures and short sales accounted for 45% of last month's total, the trade group said.
The Mortgage Bankers Association said Dec. 5 that the percentage of mortgages delinquent by 30 days or more and those already in foreclosure hit record highs in the third quarter.
Declines in home construction have been a drag on economic growth since the first quarter of 2006, and that is likely to remain the case until sales and prices improve.
Lennar Corp., which builds homes in 14 states, reported its seventh straight quarterly loss Dec. 18.
"Frankly, we're in the midst of a downward spiral, and the momentum is building," Stuart Miller, Lennar's chief executive, said on a conference call with analysts.