US home prices slump as crisis deepens

Unless you are selling a house in Washington or buying one in Minnesota there is little cause to celebrate the state of the US housing sector.

Despite ultra-low borrowing rates, experts say a steady flow of repossessed homes onto the market, tighter bank lending rules and high unemployment have kept prices at rock bottom.

According to a widely watched housing index, prices in 20 major metropolitan areas fell 3.6 percent in the 12 months to March, down from already suppressed levels.

In the northern city of Minneapolis, prices fell by a staggering 10 percent during the year.

That has put the Minnesota city at the sharp end of a sectoral slump that has hit almost the entire nation. Only in the capital, Washington, did prices rise on a year-over-year basis, according to the S&P/Case-Shiller index.

"Prices of houses are now below the lows reached during the depths of the economic crisis," said economist Joel Naroff.

According to Maureen Maitland of Standard & Poor\'s, prices are being kept low by tens -- if not hundreds -- of thousands of repossessed homes going back on the market.

And she believes the flow is not about to stop: "There is a lot of inventory overhang, and there is a lot of shadow inventory across the rest of the nation getting ready to be put there."

Banks are thought to currently own as many as 872,000 homes across the country, a number that is likely to increase in the coming months, pushing prices down further.

That is bad news for the broader economy, which depends on a buoyant housing market to keep Americans solvent and allow the easy movement of labor.

"Falling house prices damage the economy in several ways," explained IHS Global Insight economist Patrick Newport.

"They reduce wealth, which reduces consumer spending. They squeeze builder profits, which reduces housing starts. They force lenders to tighten lending standards, since the collateral is depreciating in value off the bat, reducing existing home sales. They reduce state and local property tax collections, resulting in spending cutbacks."

According to Newport falling prices also raise the level of uncertainty, scaring Americans from the market and leading to more foreclosures.

Tuesday\'s report will come as a body blow to many Americans who cautiously eyed signs of an improvement in house prices -- one that now appears to have been a false dawn, prompted by government incentives to buy.

"People had begun to think that cycle was ending last year when prices started to recover, but now what we believe is happening is that that was really due to the home-buyers tax credit," said S&P\'s Maitland.

The White House said the data showed the housing market remained "challenging."

"Restoring health in the housing market after its dramatic collapse was never going to be easy," said spokesman Jay Carney.

In Minneapolis, economists say the picture has been skewed by poor weather conditions, but the outlook is still bleak.

According to Toby Madden, a regional economist with the Federal Reserve\'s Minneapolis branch, revelations that banks signed foreclosure documents without proper vetting -- a practice called "robo-signing" -- could have slowed post-foreclosure sales.

"It has put somewhat of a restriction in supply to the market. Banks seem to be holding on to their inventory... making sure they do own it before they try to sell it," he said.

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