November Home Prices Continue to Cool

(S&P/Case-Shiller November home prices report updated with commentary.)

NEW YORK ( TheStreet) -- Home prices across the U.S. fell 1.6% in November after declining in October, a slightly larger than expected decline.

The S&P/Case-Shiller 20-city index of national home prices fell in November on a seasonally adjusted basis, ticking down 1.6% after declining 0.8% in October. The 10-city composite showed a 0.4% decline.

Economists had been expecting the index to fall 1.5%, according to consensus estimates listed on Briefing.com.

The S&P/Case-Shiller 20-city index is a moving three-month average, so data for November was swayed by data from October and September.

Home prices fell in 19 of the 20 metropolitan statistical areas (MSAs) month-over-month. Just four MSAs -- Los Angeles, San Diego, San Francisco and Washington -- showed year-over-year gains, while eight markets -- Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa -- fell to their lowest levels since home prices peaked in 2006 and 2007.

As of November 2010, Las Vegas is down 57.2% from its peak in August 2006. Phoenix is 53.9% down from its peak on June 2006 and Miami is 48.8% down from its peak on December 2006.

"With these numbers more analysts will be calling for a double-dip in home prices," said David M. Blitzer, chairman of the index committee at Standard & Poor's, who defines a double-dip as setting new post-peak lows.

The 10- and 20-city composites were 4.8% and 3.3% above their April 2009 lows, which Blitzer said suggests a double-dip in home prices could be confirmed by this spring.

"Certainly eight cities setting new lows, and with the only positive news concentrated in southern California and Washington DC, the data point to weakness in home prices," he said.

A variety of factors have kept potential buyers from making home purchases in recent months despite mortgage rates at near-record lows. Still-high unemployment, a lack of credit and the expiration of federal tax credits for homebuyers are obvious reasons. The recent foreclosure scandal also plays its part.

Last week the National Association of Realtors said that existing-home sales rose 12.3% in December to a seasonally adjusted annual rate of 5.28 million units, topping Wall Street's expectations. While the rate improved, it remained 2.9% below the 5.44 million units recorded in December 2009.

"December was a good finish to 2010, when sales fluctuate more than normal," said Lawrence Yun, NAR chief economist. "The December pace is near the volume we're expecting for 2011, so the market is getting much closer to an adequate, sustainable level."

The national median existing-home price for all housing types was $168,800 in December, up 1% year-over-year, the NAR report showed. Distressed homes accounted for 36% of all existing-home sales last month, up slightly from a 33% share in November.

Pending home sales rebounded 3.5% in November but remained 20.5% lower than in the year-earlier month. Data on December's pending home sales is expected to be reported on Thursday.

New-home sales rose 5.5% in November but were 21.2% below year-earlier levels. Sales of newly built homes are expected to have risen to an annualized rate of 300,000 in December, from 290,000 in November. December's new-home sales data is expected to be released on Wednesday.

Earlier last week, the Commerce Department reported that applications for building permits spiked 16.7% in December, pointing to potential strengthening in demand for future homebuilding activity, though homebuilders began construction on 4.3% fewer homes in the month.

"As we emerge from the traditionally slow holiday season, builders continue to look for signs of improvement in the economy, home buyer demand and builder and consumer credit conditions," said Bob Nielsen, a home builder from Reno, Nev. and 2011 chairman of the National Association of Home Builders.

Though a restrained level of optimism is fair, the short-term housing picture remains fairly grim.

"At this point, housing remains on the sidelines of a weak economic recovery as consumers and builders wait for clear and consistent indications that jobs and economic output are reviving," said NAHB Chief Economist David Crowe. "Meanwhile, the problems that builders continue to confront in obtaining production financing, and in maintaining performing lines of credit, threaten to significantly slow the onset of a housing recovery."

A shadow inventory of homes could take two to three years to clear to a point where housing supply and demand begin to match up, Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm, told the TheStreet last month. No acknowledged housing bottom will appear until that shadow inventory is significantly curtailed, he said.

Homebuilders should expect material dampening of new-home purchases until then, Brungardt forecast. Current homeowners will also continue to be impacted unfavorably.

The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The SPDR S&P Homebuilders ( XHB), an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction ( ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

Among individual builders, Toll Brothers ( TOL) was 0.4% higher in morning trading Tuesday. Toll Brothers surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, and recently said deposits jumped 10% in the second half of November compared with year-earlier results.

Lennar ( LEN) gained 0.3% Tuesday morning. Earlier this month, Lennar posted better-than-expected fiscal-fourth quarter earnings but said new-home deliveries were down 12%.

Small-cap builder KB Home ( KBH) fell 0.1% Tuesday morning. KB Home recently posted a surprise quarterly profit and said fewer homes delivered in its recent quarter was partially offset by an increase in the average selling price.

Elsewhere, D.R. Horton ( DHI) fell 0.1% and PulteGroup ( PHM) lost 0.6%.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to @miriamsmarket.

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