Housing Prices Drop Back to 2003 Levels
Linda Young

Washington, DC

National home prices declined by 3.9 percent during the third quarter, which was a larger decrease than expected but still less than the 5.8 percent drop posted in the second quarter.

Many analysts had only expected a 3 percent drop in housing prices.

The 3.9 percent drop places home prices back at their first quarter 2003 level, which was still in the run-up phase to the record highs seen in 2006 before the housing bubble burst.

David M. Blitzer, chairman of the Index Committee at S&P Indices, put the situation in perspective, noting that higher house prices would require a better economy.

"Home prices drifted lower in September and the third quarter," says Blitzer. "The National Index was down 3.9 percent versus the third quarter of 2010 and up only 0.1 percent from the previous quarter. Three cities posted new index lows in September 2011 - Atlanta, Las Vegas and Phoenix. Seventeen of the 20 cities and both Composites were down for the month. Over the last year, home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy."

The 3.9 percent drop in home prices was the national rate of decline. Another S&P Index of prices in only 20 metro markets found prices only dropped by 3.6 percent in those select areas.

If an end to the drop in housing prices depends on a stronger economy, that day is not yet in site.

Although the official unemployment rate stands at 9 percent, only 64.2 percent of working-age Americans has a job compared to 89 percent before the 2007 crash in housing prices. In addition, more than 8 million Americans are involuntarily working part-time because either their employer reduced their hours or they are unable to find full-time work, according to the U.S. Department of Labor.

In the meantime, about 10.7 million Americans owe more on their home than it is worth. That's more than one in every five mortgages, but down from the 10.9 million who were underwater in the second quarter. The decline isn't because the other 264,000 sold their homes but rather because the banks foreclosed on those people, according to data from the New York Federal Reserve showing that number of people had a foreclosure added to their credit reports.