By Joe Richter and Courtney Schlisserman
Dec. 26 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell in October by the most in at least six years, raising the risk that more Americans will walk away from properties that are worth less than they owe.
Values fell a greater-than-forecast 6.1 percent from October 2006, the S&P/Case-Shiller home-price index showed today. The decrease was the biggest since the group started keeping year-over-year records in 2001.
Prices will continue falling as record foreclosures put even more homes on the market while stricter lending rules make financing tougher to get. Declining values also pose a risk to consumer spending by making it harder for owners to tap home equity for extra cash.
``You are likely to see more people giving up on their loans as they end up with little or no equity in their homes,'' said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. ``It's one more factor that weighs on the path of consumption.''
Compared with a month earlier, home prices dropped 1.4 percent, the biggest one-month decline since records began. The figures aren't seasonally adjusted, so economists prefer to focus on the year-over-year change.
The median forecast of 12 economists surveyed by Bloomberg News projected a 5.7 percent decline after the index dropped 4.9 percent in the 12 months ended in September.
A report from the Federal Reserve Bank of Richmond today also showed manufacturing in its region contracted for the second time in three months in December. Combined with earlier reports this month that showed factory activity slowed in New York and also shrank in the Philadelphia region, the reports suggest the housing slump is filtering through the economy.
Seventeen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year decline in prices, led by 12 percent slumps in Miami and Tampa, Florida. Three cities, Charlotte, North Carolina, Seattle and Portland, Oregon, showed an increase from a year earlier.
All 20 areas covered showed a drop in prices compared with September.
``There is no silver lining'' in the report, said David Blitzer, chairman of the index committee at Standard & Poor's, in an interview on Bloomberg Television. ``If you look across the cities, more often than not, the bigger the run-up, the more it comes down. There is no clear sign of a bottom in these numbers.''
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Prices to Worsen
The housing market may continue to weaken as an increase in foreclosures adds to a glut of unsold homes on the market, spurring sellers to cut prices, economists said.
``With supply overhang enormous and mortgage financing tougher to obtain, home prices are going to decline considerably further in the quarters ahead,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm.
Lower home prices may also threaten spending. This holiday shopping season is forecast to be the weakest in five years, according to the National Retail Federation. A jump in November sales and a rush of last-minute purchases the weekend before Christmas probably weren't enough to change that outlook, according to analysts.
Stocks dropped following the reports and later pared losses. The S&P 500 index rose 1.2 points, or 0.1 percent, to close at 1,497.66 in New York. The supercomposite homebuilder index gained 0.3 percent.
Figures later this week from the Commerce Department may show new homes sold at an annual rate of 718,000 in November, down from October's 728,000 rate, based on the median estimate of economists surveyed by Bloomberg News.
Sales of new houses probably will fall 8.9 percent in 2008 after a 25 percent drop this year, according to a Dec. 13 forecast from Fannie Mae, the largest mortgage buyer.
``The market is too challenging to make predictions for fiscal 2008,'' Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., said on a conference call on Dec. 19. ``It will be a difficult year.'' The Red Bank, New Jersey- based company reported a net loss of $467 million for the three months ended Oct. 31.
Residential investment has subtracted from economic growth for the past seven quarters. Home building dropped at a 20.5 percent annual pace in the third quarter, the most since 1991.
The S&P/Case-Shiller index and another by the Office of Federal Housing Enterprise Oversight track the same home over time and more accurately reflect price trends, economists said.
Price gauges from the Commerce Department and the Realtors group can be influenced by changes in the types of homes sold. Higher sales of cheaper homes relative to more-expensive properties will bias the figures down.