April 29, 2008

By Chris Bryant

US house prices continue to plunge by a record amount, a new report showed on Tuesday, adding to pressure on consumers and threatening to prolong a domestic economic slowdown. House prices have declined in all 20 cities for six consecutive months but eight of these areas reported their largest monthly decline in the latest survey, indicating the housing slump may be getting worse. "There is a sense that the consumer is besieged by a perfect storm of falling home values, fuel and food price increases, reduced access to credit, and falling employment and income," Alan Ruskin, chief international strategist at RBS Greenwich Capital, said. Interest rates have already fallen by 300bp since September, limiting some of the pain for borrowers with adjustable rate mortgages, but prospective home buyers have remained on the sidelines as prices have spiralled lower amid a glut of unsold properties.Robert Shiller, economist and co-founder of the housing index, warned last week that the severity of the decline in residential property values threatened to exceed that of the Great Depression, when house prices dropped 30 per cent. Since its peak in June 2006, the 20-city house price index has already fallen 14.8 per cent. The brutal blow to property values has left almost 9m US homeowners in negative equity, meaning they owe the lender more than their house is worth, according to an estimate by Moody's Economy.com. Economists fear further price deterioration could tempt homeowners with little or no equity in their property to stop paying the mortgage and walk away, triggering another wave of foreclosures and further downward pressure on prices.

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