Unseasonably warm weather and a soon-to-expire tax credit failed to buoy Twin Cities home prices in March. Prices were 2.7 percent lower than they were in February, according to the widely watched S&P/ Case-Shiller home price index released Tuesday.
The only housing market to experience a larger percentage decrease during this period was Detroit. The 20-city composite index also experienced a decline, with prices falling 0.5 percent over that same period. Both locally and nationally, home prices have fallen for six months straight.
The news helped spook the Dow Jones industrial average early in the day, already skittish from troubles in Europe. The index spent much of the day hovering below the 10,000 mark, only to close above that psychological threshold at 10,043.75, but down almost 23 points from the day before.
Year-over-year, March prices in the metro area improved by 6.5 percent, and by 2.3 percent nationwide. Average home prices across the United States are about where they were in the spring of 2003. But prices around the metro area are close to where they were in the spring of 2001 and about one-third lower than the high of September 2006.
Alex Stenback, a mortgage banker with Residential Mortgage Group in Wayzata, puts more stock in the year-over-year numbers because "the month-to-month numbers are just a snapshot ... I think it's super-hard to put a finger on the direction of the market at least in a short-term trend." He thinks the market is "undergoing some sort of bottoming process," although recovery remains elusive.
"The most recent monthly data are not as encouraging," Standard & Poor's David Blitzer said in a statement. "It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don't expect to see a boost in relative demand."
Data from local Realtors' groups show that demand has dropped sharply in the weeks after the home buyer credits expired. And many economists predict prices in this post-tax credit period may still be searching for a bottom.
"The housing glut and foreclosures will drive the national Case-Shiller index down another 6 to 8 percent, with prices bottoming in 2011," Patrick Newport, an economist with IHS Global Insight, wrote in a brief he released Tuesday. Housing economist Celia Chen agrees that prices won't stabilize until next year. "The large pipeline of distressed properties is the main force driving the expectation that the trough has yet to be reached for house price," said Chen, of Moody's Economy.com "Distressed properties that end up on the for-sale market are typically sold at a discount and this discounting will place additional downward pressure on house prices in the coming year."
Price declines make it tougher for families to refinance, or sell their homes for what they paid for them. Because the bulk of most families' wealth is tied up in their house, watching values fall presents a psychological barrier to going out and spending money at the mall or on a new sofa set.
When will prices return to the level seen during the 2006 housing bubble? Prepare for a long wait. An analysis conducted last month by financial services technology company Fiserv predicts the Minneapolis-St. Paul area might not see prices that high until spring 2023.
Kara McGuire • 612-673-7293