Fall in house prices raises fears for US economy

• Recovery hit by drop in consumer confidence • US house prices back to 2002 levels US house prices have fallen back to levels last seen in 2002 and consumer confidence has also fallen sharply according to new figures, leading to fresh fears about the country’s economic recovery. A closely watched measure of the property market, Standard & Poor’s Case-Shiller home price index, has fallen for eight months in a row and declined by 4.2% in the first quarter of 2011, following a 3.6% fall in the fourth quarter of 2010. By the end of March the index hit a recession low and showed an annual decline of 5.1% compared with the first quarter of 2010. According to the survey, nationally home prices are back to their mid-2002 levels. Prices in Atlanta, Cleveland, Detroit and Las Vegas are below January 2000 levels. The US economy had been showing a better than forecast recovery but the Conference Board, an industry group, said its index of consumer attitudes fell to 60.8 in May from a revised 66.0 in April, well below economists’ forecasts for 66.5. A third survey also suggested that growth could be slowing. Ken Goldstein, Conference Board economist, said the figures were evidence that consumers were worried about jobs, food prices and housing. “These are not good numbers, we are back to where we were two month ago. But I think we are bobbing along the waves, not sinking further.” Business activity in the heartland mid-west grew much less than expected last month as sales and employment weakened. The Institute for Supply Management-Chicago business barometer dropped to 56.6 in May, its lowest reading since November 2009. The reading was 67.6 in April, and economists had forecast a May reading of 62.6. “The question is, ‘Is the softer data we’re seeing transitory, or is it likely to persist throughout the remainder of 2011?’ Right now, that’s an open question that investors are trying to figure out,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. Prices of single-family houses in the 20 largest US cities fell 0.2% from February to March on a seasonally adjusted basis, according to the Case-Shiller index. Year on year house prices fell in 19 of the 20 big cities polled by Case Shiller when compared with March 2010. Minneapolis saw a 10% annual decline, the first market to experience a double digit drop since March 2010 when Las Vegas was down 12% on an annual basis. Washington DC was the only city where home prices increased. Housing in the capital was up 1.1% on a monthly basis and 4.3% over the year. Seattle was up a modest 0.1% for the month, but still down 7.5% against March 2010. About 28.4% of US homeowners owe more on the mortgage than their house is worth, real estate data firm Zillow said this month. “This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” said David Blitzer, chairman of the index committee at S&P Indices. “Home prices continue on their downward spiral with no relief in sight.” Blitzer said that since December 2010 an increasing number of markets had hit new lows. In March 2011, 12 cities – Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland (Oregon) and Tampa – fell to new lows for the current housing cycle. A rebound in prices seen in 2009 and 2010 was largely due to a tax credit for first-time home buyers, he said. Excluding that policy he said there has been no recovery or even stabilisation in home prices since the recession. US economy Global economy Economics Credit crunch Financial crisis United States Dominic Rushe guardian.co.uk

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