Indication of Double Dip as Home Price Indices Drop

April 6, 2011

“The U.S. housing market’s condition continues to worsen, heightening expectations of a double-dip housing recession,” writes Julie Schmit of USA TODAY in an article titled “Home price drop hints at double dip”. According to the S&P/ Case-Shiller home price index numbers released last week U.S. home prices dropped in most of major housing markets in the nation in January. The S&P/Case-Shiller 20-city composite indicates prices that are 3.1% lower (4.7% lower in Miami FL) from its January 2010 level. The largest decline from January 2010 was recorded in Phoenix at -9.1%. An increase in prices has been recorded in only two out of the 20 cities. San Diego registered a 0.1% price increase while an incline of 3.6% was recorded in Washington, D.C. The 10-city index fell 2% from January of 2010.

These recent numbers follow some other recent concerning news about the housing market. New homes sales plunged in February, and existing home sales were down 3% for the month in comparison to February of 2010. Patrick Newport, chief economist with IHS Global Insight says, “we had expected the housing market to show somewhat better numbers by now. Things are much weaker than we anticipated.” As he still expects to see better numbers in the next quarter of the year, Newport says they now “won’t be as good as earlier hoped.” Mark Zandi, economist with Moody’s Analytics, says that the housing statistics are indeed “bad”, but the sector’s performance is “roughly sticking to script”. Zandi still believes that prices will bottom later this year.

According to the S&P a double dip in housing will occur when home prices in its 10- and 20-city composites set a new post-peak lows. When compared to their April 2009 lows, the 10-city composite is still 2.8 higher, and the 20-city one is up 1.1%. However; according to the S&P both have been moving closer to a confirmed double dip for six consecutive months. As prices fall more homeowners will go underwater on their mortgages, as they would owe more that their homes are worth. This could create a situation where more homes would go into foreclosure, which will drive prices even lower. Paul Dales, a U.S. economist of Capital Economics says “There won’t be much of a housing recovery this year, at all,” he believes that prices may stabilize next year.

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