Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.

This post is a guest contribution by Asha Bangalore, vice president and economist at The Northern Trust  Company.

The Case-Shiller Home Price Index fell 0.5% in November marking the fifth consecutive monthly price decline following gains in the each of the three months of the second quarter.  On a year-over-year basis, the index has declined 1.6% in November after a 0.8% drop in October.  Moving back in time, the Case-Shiller Home Price Index posted year-to-year gains in each month during the February-September 2010 period, reflecting the positive influence of the first-time home buyer credit program.  Details show that 19 out of the 20 metro areas posted lower home prices in November 2010 vs. October 2010.  On a year-to-year basis, only four metro areas (San Diego, Los Angeles, San Francisco, and Washington DC) posted gains.  More importantly, prices of homes in seven metro areas (Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland, Seattle, and Tampa) posted new lows for home prices since their peaks in 2006 and 2007.  The FHFA’s house price index also sends a message similar to that of the Case-Shiller Home Price Index (see Chart 3).

The Case-Shiller 20 and 10 metro area indexes have both dropped to levels last seen in 2003 (see Chart 4).  The staggering and persistent drop in home prices is troubling for the FOMC focused on raising growth.  If home prices continue to maintain a downward trend, additional homes will be under water and net worth of households will suffer a setback.  This will set forth a vicious cycle that is not all too favorable for the economy.  At the cost of being repetitive, robust improvements in hiring hold the key to stability in the housing market.

Source: Asha Bangalore, Northern Trust, Daily Global Commentary, January 25, 2010.

In the video below, David Blitzer, S&P 500 Index Committee Chairman, provides his comments.

Source: CNBC, January 25, 2011.

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U.S. home prices remain a challenge was first posted on January 26, 2011 at 8:50 am.
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