Home Prices Are Dropping Again as the Markets Head Toward a Devastating "Double-Dip"

There was no mention whatsoever of the housing crisis in Barack Obama's State of the Union Address on Tuesday, or in the responses offered up by Republican Reps Paul Ryan, Wisconsin, and Michele Bachmann, Minnesota.

It's a stunning omission. According to analysts, the housing markets have taken a downward turn after rebounding during the first months of 2009. Home prices took a sharp hit in November, and have now declined for 4 straight months. The American housing market now appears to be heading towards a painful “double dip.”

The Case-Shiller index of housing values in 20 metropolitan areas -- the highly respected index that predicted the collapse of the housing bubble years before it crashed -- now stands just 3 percent higher than the trough set in April of 2009, and according to Standard and Poor's, the data suggest that “a double-dip could be confirmed before Spring.” It's already here for many cities. According to the latest data, “nine markets – Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009.”

Daniel Alpert, managing partner for Westwood Capital, told Forbes that “the most striking thing about the report is that we are seeing a repeat of the price decline patterns that appeared during the 2006-2009 downturn.” Alpert pointed to declines starting in “sand state” markets and “gradually spreading to the balance of the remaining markets.”

Stagnating wages and the worst jobs picture since the Great Depression are the primary causes of the housing markets' woes. Few Americans are in a position to make major purchases these days.

Analysts say that the expiration of the first-time home buyer's tax credit Congress passed as part of the stimulus package is another factor in the drop in prices. Economist Dean Baker noted that the decline is being led by less expensive homes, which would be consistent with the idea that the tax credits for younger buyers had been propping up the markets in 2009. But he added that the drop in prices for less expensive homes is effecting more upscale properties.

As a result, Baker noted that “several of the markets that had remained reasonably strong through the worst days of the bust are now seeing rapid price declines.”

Prices fell by 1.0 percent in Boston in November and at a 13.4 percent annual rate over the last three months. In San Francisco, prices dropped by 1.2 percent and have fallen at a 14.8 percent annual rate over the last quarter. In Seattle and Portland, prices dropped by 1.1 percent and 1.6 percent, respectively, in November. The rate of decline in the last three months was 13.4 percent in Seattle and 18.0 percent in Portland.

The banks' robo-signing scandal – and the foreclosure mess more generally – is also weighing down the market. 2011 is projected to set a new record for American families losing their homes, and the prospect of millions of distressed properties coming onto the market in the coming months and years is also keeping prices from rebounding – the inventory of distressed homes isn't being cleared, which is creating a drag on the entire economy. David Blitzer, chairman of S&P’s index committee, told Forbes, “On a year-over-year basis, sales are down more than 25% and the month’s supply of unsold homes is about 50% above where it was during the same months of last year.”

All of this means that more homes are heading under water. And now we're seeing banks walk away from those properties because it's not worth it for them to maintain them until they're sold, which is just adding more stress to already vulnerable communities.