U.S. home prices in major cities are falling at the fastest rate in 16 years, Standard & Poor's reported Tuesday.
For 10 major cities, home prices fell 0.6% in July and are down 4.5% in the past year, the fastest decline since 1991, according to the Case-Shiller home price index released by S&P. For 20 major cities, prices fell 0.4% in July and are down 3.9% in the past year, the largest decline in the seven-year history of the index.
The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metro real-estate values.
Falling prices make it more difficult for homeowners to tap their home equity or refinance their mortgages. Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as a result of payment resets.
The last time prices fell so much, it took more than eight years for home prices to return to their peak level.
In a separate report, the National Association of Realtors said sales of existing homes fell to a five-year low of 5.50 million units annualized in August, while inventories of unsold homes rose to an 18-year high. See full story.
"The housing outlook remains grim as home sales decline and inventory remains elevated," wrote Michelle Meyer, an economist for Lehman Bros. She expects a cumulative 15% decline from the peak in the quarterly national Case-Shiller index.
Economists at Goldman Sachs said the latest data are on track to meet its forecast for 7% declines in home prices this year and next.
There's no end in sight, but it's not a disaster for most people, said Robert Shiller, chief economist for MacroMarkets LLC.
"The big effects are likely to come next year," Shiller told MarketWatch. "We might see a decline in consumer spending and a decline in confidence that could lead to a recession." Listen to an interview with economist Robert Shiller.
Prices are lower in 15 of the 20 cities compared with a year ago, according to Case-Shiller. The biggest declines are the Rust Belt and in the formerly boom towns along the coasts. Prices are holding up in the Pacific Northwest and in areas of the South.
Here are the 20 cities covered by the Case-Shiller index, ranked from worst to best:
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