U.S. Real Estate Values Vary Wildly by Locale

The Standard & Poor’s/Case-Shiller National Home Price index released data for the first quarter of 2009 this week showing that overall home prices in the U.S. fell by an average of 19.1%, the largest drop in a single quarter in the 21-year history of the index itself.

However, the drop in prices varied wildly according to locale, proving the old adage that real estate is indeed local, and now more so than ever before.

Since hitting an all-time high in the second quarter of 2006, U.S. real estate prices have dropped 32.2%, making the most recent drop all the more dramatic and concerning. However, in some parts of the U.S., the 2009 first quarter loss was even steeper than the national average, with a very few regions appearing to stabilize somewhat.

“By our estimation, the composite 20-city index is perhaps two-thirds of the way through its ultimate total decline in this cycle,” remarked Joshua Shapiro, chief U.S. economist for MFR Inc.

Analysts have been trying to predict the bottom of the U.S. real estate market for close to three years now, with most real estate experts agreed that a national turnaround won’t come any earlier than 2010. Prices are expected to keep falling throughout the remainder of 2009, though at a slower pace than the steep first quarter drop.

Detroit continues to be the poster child for the American foreclosure crisis, with real estate currently down to 1995 levels, and many bank-owned homes not saleable at any price.

U.S. cities showing signs of stabilization include Charlotte, N.C., Portland, Ore., and Seattle, WA; all of which are holding steady at 2005 levels. Dallas, TX and Denver, CO also showed early signs of stabilizing.

You know the market is rough when just not losing value is an encouraging sign.

By contrast, Phoenix, Las Vegas, and San Francisco all showed record single quarter drops of over 30%.

Fueling the continuing drop in home prices are ongoing record foreclosures, which in turn are strongly tied to the catastrophic jobs losses Americans continue to experience. The recent attempt by the Obama administration to encourage mortgage lenders to modify loans for a narrow group of customers through their Making Home Affordable program is not yet making much of a dent in the foreclosure figures.

The program is not keeping up with the foreclosure rates partly because in order to qualify for the government support, homeowners must be current on their mortgage and their homes cannot be too badly underwater; and partly because loan modifications within that government program are still completely voluntary on the part of the lender.

In short: the program is simple and straightforward, but most foreclosure situations are not.

Statistics for April home sales are expected later this week and are widely expected to show a small uptick.