By Shobhana Chandra
WASHINGTON - Home prices in 20 U.S. cities dropped more than forecast in December to the lowest level since the housing crisis began in mid-2006, indicating foreclosures are hampering the industry’s recovery.
The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from a year earlier, after decreasing 3.9 percent in November, a report from the group showed Tuesday in New York. The median forecast of 31 economists surveyed by Bloomberg News called for a 3.7 percent decline.
Distressed properties returning to the market mean prices will stay depressed, prompting buyers to wait for cheaper bargains and impeding construction. While sales have begun to stabilize, a rebound in home values may take time, underscoring Federal Reserve policy makers’ concern that weakness in housing is blunting their efforts to spur the economic expansion.
“Prices are going to fall through this year and early next year,” Yelena Shulyatyeva, an economist at BNP Paribas in New York, said before the report. “Things will continue to worsen on the supply front, as there will be an increase in foreclosures. The downward trend in prices is making a lot of buyers postpone purchases.”
Economist’s estimates ranged from declines of 4.1 percent to 3.2 percent, according to the survey. The Case-Shiller index is based on a three-month average, which means the December data was influenced by transactions in October and November.
The November reading was previously reported as a year- over-year drop of 3.7 percent.
Home prices adjusted for seasonal variations fell 0.5 percent in December from the prior month, following a decrease of 0.7 percent in November. Unadjusted prices fell 1.1 percent from the prior month.
The year-over-year gauge, begun in 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Nineteen of the 20 cities in the index showed a year-over-year decline, led by a 12.8 percent drop in Atlanta. Detroit showed the only increase, with prices rising 0.5 percent in December.
Nationally, prices decreased 4 percent in the fourth quarter from the same time in 2010 to the lowest level since mid-2006. They fell 3.8 percent from the previous three months before seasonal adjustment, and fell 1.7 percent after taking those changes into account.
“The pickup in the economy has simply not been strong enough to keep home prices stabilized,” David Blitzer, chairman of the S&P index committee, said in a statement. “If anything, it looks like we might have re-entered a period of decline as we begin 2012.”
Recent reports indicate demand is steadying. Existing-home sales rose to a 4.57 million annual rate in January, the National Association of Realtors reported last week. While it was the best showing since May 2010, distressed properties made up the largest portion of all purchases since April.
Toll Brothers Inc. and D.R. Horton Inc. are among builders benefiting from job growth as well as cheaper properties and record-low mortgage rates.
“We’re optimistic,” Doug Yearley, CEO at Horsham, Pa.-based Toll Brothers, said in a Feb. 22 interview with Bloomberg Television. “We have orders that are up significantly. We’re seeing deposits up, we’re seeing traffic up.”
Excess supply of distressed properties is dragging down values for all houses. About 5 million houses have been lost to foreclosure in the U.S. since 2006, according to RealtyTrac Inc. Banks may seize more than 1 million U.S. homes this year after legal scrutiny of their foreclosure practices slowed actions against delinquent homeowners in 2011, it said last month.
“Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery,” Fed Chairman Ben S. Bernanke said in the cover letter of a Fed study on the housing market that he sent to Congress last month.