In The News

New York Times
March 3, 2007

When It Comes to House Prices, The Bloom is Off The Cactus
By Floyd Norris

IN the fall of 2005, the greatest boom in home prices in America was going on in Phoenix. People stood in line just to get on lists to buy new homes. It was possible to make lots of money selling a place on a list well before the house was actually built.

At the peak of momentum in that market, according to the Standard & Poor’s/Case-Shiller home price index, house prices in Phoenix rose 49 percent in one 12-month period.

That was then. When S.& P. released the final 2006 numbers this week, it reported that Phoenix home prices rose just 0.3 percent in 2006. And it said that home prices peaked in June and fell 2.6 percent in the final six months of the year.

Home prices are notoriously difficult to compare. Every house is different from every other, in location if not in construction. The government compiles national averages of new-home prices, but it is hard to determine what they mean, because regional differences are huge.

The S.& P. indexes, which now cover 20 regions, try to deal with that by recording all sales in an area, and then comparing the price with the price that house fetched the last time it changed hands. They include only single-family homes, not condominiums or cooperative apartments, which can distort the picture in areas where such apartments form a major part of the housing market.

The graphic shows the performance of the indexes, year over year, for 12 areas. They illustrate the wide regional variances, showing that Phoenix was not the only part of the desert that boomed. Las Vegas, with a 53 percent year-over-year rise in the fall of 2004, set the mark for best annual performance. In 2006, prices there rose just 0.9 percent.

Big coastal markets also did very well, although not to that extreme, and are now coming down. Prices in the New York region slipped just a bit in 2006, although that figure is distorted because it ignores Manhattan apartment prices, which have been strong. Larger declines were recorded in Boston, Washington, San Francisco and San Diego, but Los Angeles eked out a 2 percent rise for the year.

These indexes cover two Florida areas, Miami and Tampa, which seem to still be doing well. But it is condominiums that have the most problems down there, with many of them having been bought by speculators who planned to sell quickly, and now find that difficult to do.

The worst performance for the year came in Detroit, which never really boomed. With the automobile industry continuing to suffer, prices fell 5.9 percent in 2006.

Some areas continue to do well. Prices in Seattle rose 12.1 percent last year, the only double-digit rise, although Portland, Ore., came close with a 9.9 percent gain. In 2005, by contrast, half the areas recorded double-digit gains.

Home sales are falling, which is bad news for builders, but for those who already own homes the really important issue is price. So far, prices are not very far below peak levels in most markets, but continued weakness could change that, and create pain for those who must sell, or who need to refinance their mortgages.