Home prices decline as tax credit expires

By Stephanie Armour, USA TODAY

Home prices are showing signs of weakening and could slide still further now that tax credits for home buyers are no longer around to spur sales.

The Standard & Poor's/Case-Shiller 20-city composite index of home prices fell in March from February, the sixth-consecutive monthly decline, S&P reported Tuesday. Prices fell in 13 of 20 metro areas represented in the composite index.

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The national home price index also fell 3.2% in the first quarter from the fourth, but both it and the 20-city composite index are up compared with a year earlier.

"We're beginning to see the beginning of weakness," says Paul Ashworth, senior economist at Capital Economics, adding that price declines may come close to reversing any price appreciation seen so far this year.

The tax credits "have been quite a shot in the arm short term, but there's a good chance house prices will fall again," he says.

The tax credits provided up to $6,500 for move-up home buyers and up to $8,000 for first-time home buyers, and many rushed to purchase homes before the credits expired last month. Now prices and sales are expected to fall without the federal stimulus boosting sales.

A growing supply of homes for sale also is expected to dampen sales and prices.

Total housing inventory at the end of April rose 11.5% to 4.04 million existing homes available for sale, which represents an 8.4-month supply at the current sales pace, up from an 8.1-month supply in March, according to the National Association of Realtors.

Prices in the Case-Shiller index could continue to fall and bottom in 2011, says Patrick Newport at IHS Global Insight.

"You're going to see a sharp drop in demand because the tax credit isn't there," Newport says. "There is more supply. But demand has also grown because interest rates are really low and employment has picked up."

The average rate on a 30-year, fixed mortgage was 4.84% for the week of May 20, according to Freddie Mac. That was the lowest rate since December.

According to the Case-Shiller report, average home prices in the first quarter were close to the levels of 2003.

Metro areas posting new index lows in March were Atlanta, Charlotte, Chicago, Detroit, Las Vegas, New York, Tampa and Portland, Ore.

S&P reported that eight metro areas showed significant gains from their troughs in prices. Los Angeles is up 7.2%; Minneapolis, up 7.4%; San Diego, up 10.9%; and San Francisco, up 16.2%.

San Diego has seen 11 consecutive months of increasing home prices.

Posted 5/25/2010 9:12 AM ET