Last week Standard & Poor/Case-Schiller released their monthly index of home prices and the news was not good. In their 20 city composite, average sale price dropped by 0.8% in October. This followed a 1.5% drop in September. This has led some economic analysts to predict home prices are going to continue to decline, essentially a double-dip, in 2011. The chart below (from S&P) shows the change in home prices over the last twenty years. Note: this chart is not actual home prices, but hte amount of change over the preceding year.
You can see the rate of growth in home prices began to decline in 2006, and prices actually dropped in mid-2007. In 2009, the rate of decline started to slow and prices went up early in 2010. However, following the expiration homebuyers tax credit this postive trend reversed.
While this is certainly not good news, its perhaps not as terrible as some analysts have observed. Sales of new homes and existing homes grew over 5% in November, the same period as the drop in the Case-Schiller Index. The NAR sales index showed median prices actually increasing 1.2% over November 2009.
Real Estate Professor Susan Wachter from the University of Pennsylvania said in an interview with Bloomberg that while the months ahead may be bumpy, we should not expect a "double-dip" in home prices. She believes that we are still seeing some of the effects of the tax credit, but by the second half of 2011 the market will begin to improve.
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