Las Vegas Hit Worst By Falling Home Prices
MADELEINE BRAND, host:
Back now with Day to Day, I'm Madeleine Brand. The root of the current banking crisis housing is not looking any better. Home prices took another dive in July according to the Case-Schiller index out today. The west coast suffered some of steepest drops. Marketplace's Janet Babin is here now. And Janet, how low did prices fall?
JANET BABIN: Well, according to the Case-Schiller home price index, Madeleine which does a composite of 20 metro areas and then it does one of ten metro areas. The 10-city index was down one tenth of one percent from a month earlier, so from June to July. And the 20-city index was down nine tenths of a percent. But year over year is where we see the drama, single family home prices plunged to record 16 point three percent this July compared to last July when you look at the index.
BRAND: And which city saw the biggest drops?
BABIN: Las Vegas is the worst, the weakest market according to the Case-Schiller index. It's off more than 34 percent from the peak prices it saw in August of 2006. Phoenix, San Diego, Los Angeles are also still hurting and surprisingly the Detroit markets are prices go up just a bit from June to July. Markets in Atlanta, Boston, Dallas and Denver have had home price increases for the past three months or more. So, it's looking like those markets may have begun to stabilize a bit.
BRAND: But overall, home prices are still falling?
BABIN: That's right. And you know lower home prices, economists say are obviously tied to increases and foreclosures. And we've seen you know, people can't pay their mortgages. These foreclosures happen and then prices fall. And given the situation with the rescue package yesterday, many economists believe housing prices are not going to turn around overall until at least next summer.
BRAND: So, describe how this affects the broader economy. What's the cycle here?
BABIN: Well as you said earlier Madeleine, it's the root of the problem. It's one of the economy's biggest problems. When our houses are worth less there are foreclosures. We all feel poor, we can't buy as much stuff. Peter Morici is an economist and business professor at the University of Maryland and he explained to me today how home prices and the economy are all interconnected.
Professor PETER MORICI (Business, University of Maryland): We're kind of in a downward spiral. Lower housing prices means fewer consumers, fewer consumers means layoffs, layoffs means lower incomes, lower incomes means lower home prices.
BABIN: Morici told me after yesterday's vote, he's really worried that the economy is just spinning out of control.
BRAND: OK. So, there might be a silver lining here if houses are cheaper then it should be easier to buy them if you're in the market, right? Provided you can get the financing.
BABIN: That's the thing. Provided you can get the financing which you'll probably have trouble getting because banks are skittish, they're not even lending to each other, let alone to us. Banks are having difficulty raising money and bank to bank lending rates jumped today, despite everything the Federal Reserve has been doing.
BRAND: Thanks, Janet. That's Janet Babin of Public Radio's daily business show, Marketplace.
BRAND: Stay with us. NPR's Day to Day continues.
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