Downward spiral in prices continues in US

By far the bulk of the downturn of housing prices is beyond us,” said Paul Dales of Capital Economics. He expects the market to slip 5 percent further,slightly more than he was expecting a few months ago.

There are some amazingly favorable signs. Housing is the most undervalued it’s been in 35 years,” Dales said. “At some point,it’s going to do very well.”

Peter Muoio,senior principal of Maximus Advisors,says he thinks the market has already bottomed,although he expects it to bounce around in a narrow range for a few years rather than recovering. And James F Smith,chief economist for the investment firm Parsec Financial and a rare housing bull,is predicting a 25 percent climb from here by mid-decade.

There’s a lot of pent-up demand for housing and someday it will be unleashed,” Smith said,adding: “Your guess is as good as mine when it will come.”

The new Case-Shiller data did not offer much room for short-term optimism. The national housing index,which is reported quarterly,fell 4.2 percent in the first quarter after a drop of 3.6 percent in the fourth quarter of 2010. This,too,is a new recession low.

Twelve of the 20 cities in the index hit a post-bubble low in March. Washington,DC,was the only city where prices rose both in March and over the last year. In a double-digit drop that echoed the worst era of the crash,Minneapolis fell by 10 percent over the year.

Home prices continue on their downward spiral with no relief in sight,” David M Blitzer,the S&P Index Committee chairman,said in a statement.

Housing prices are now back to where they were in mid-2002 even before taking inflation into account. Such a decline was unimaginable to the boosters and many of the analysts in the middle of the boom,who were fond of saying that house prices never fell on a national basis. But as credit dried up and the easy refinances disappeared,the foreclosures began. Prices fell sharply in late 2006,2007 and 2008.

The market turned around in 2009,prompting hopes that the worst was over. A government tax credit proved wildly popular,but the declines resumed after its expiration a year ago.

Dean Baker,co-director of the Center for Economic and Policy Research,expects a 6 to 8 percent fall during the rest of the year. “There are a lot of forces pushing prices downward,” he said.

One of them is the excess number of houses. Builders built too much during the boom,and the mania for s

econd and third homes has sharply diminished. New household formation will soak up the supply,but that will take years.