Metro home prices head back down

The S&P/Case-Shiller price index for October fell 8.4 percent from a year earlier -- one of the biggest declines in the country.

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A new home for sale in Winter Garden, Fla. U.S. home prices fell in most major cities in October for a second straight month.

Photo: John Raoux, Associated Press

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Home prices continue to fall across the nation, with the Twin Cities metro area posting some of the biggest declines.

Prices dropped 2.8 percent in the Twin Cities from September to October, after showing some of the strongest gains during the spring and summer buying season, according to the Standard & Poor's/Case-Shiller index, which was released Tuesday.

The Twin Cities home price index was down 8.4 percent from a year earlier; only two U.S. metro areas had bigger declines.

David Blitzer, chairman of S&P's index committee, said the big declines in the Twin Cities were likely caused by a combination of factors, including a high percentage of foreclosure sales. He also said there was an unusually low number of transactions reported for Hennepin County, which will likely result in revisions once all the data is available.

Blitzer said that because of variations in the way foreclosures are processed and seasonality in the market, the Twin Cities and other markets are bound to show volatility.

"I don't think there's anything that stands out," he said. "Most cities move from the top to bottom fairly often."

Part of the trend can be attributed to a typical fall slowdown in home sales, and the Twin Cities isn't alone in its declines. All but one of the 20 cities tracked by the index saw home prices drop in October.

Second month of declines

It was the second straight month of declines for a majority of the cities. In the Twin Cities the October index fell to 111.27, which means that prices are still 11.27 percent higher than they were when the index began in 2000. The 20-region composite stood at 140.30.

The latest Case-Shiller numbers mirror trends reported by the University of St. Thomas home price index, which was released last month. It showed an increase in the overall percentage of distressed sales, including foreclosures and short sales, to more than 40 percent of all deals.

Herb Tousley, director of the real estate program at St. Thomas, said that distressed sales typically represent about 30 percent of all deals, and that prices on traditional deals fell far less than distressed sales.

The Case-Shiller report includes both kinds of transactions.

"There's not anything fundamentally wrong with the Twin Cities housing market," Tousley said. "This is a function of having more foreclosures go through the market."

The October numbers were somewhat startling given earlier trends. Earlier in the year, prices rose for five consecutive months in at least half of the regions tracked by Case-Shiller.

Buyer reluctance

Americans are still reluctant to purchase a home even though the recession officially ended more than two years ago. High unemployment and weak job growth have deterred many would-be buyers. Even the lowest mortgage rates in history haven't been enough to lift sales.

Some people can't qualify for loans or meet higher down payment requirements. Many with good credit and stable jobs are holding off because they fear that prices will keep falling

Sales of previously occupied homes are barely ahead of 2008's dismal figures -- the worst in 13 years. And sales of new homes this year will likely be the worst since the government began keeping records a half century ago.

The Associated Press contributed to this report. Jackie Crosby • 612-673-7335 • jcrosby@startribune.com

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