The first report of residential home values in 2011 continued a dismal trend. During January, residential home values declined 1.0% in the twenty largest metropolitan cities, according to statistics [.pdf] released today from S&P. This is the sixth consecutive month with a reduction in home values.
Excluding Washington, price reductions occurred in all twenty of the largest metropolitan cities, with the greatest reduction in Minneapolis, where home prices dropped 3.4%. Similar to December, eleven of these cities hit new lows in January that exceed the rock-bottom levels recorded in early 2009.
As these facts indicate, the residential housing market remains unstable. A consistent depreciation in home values has been a result of not only a growing supply of homes, but also a lower demand for homes. These two factors alone would contribute to a deceleration in housing, but the combination of these factors only exacerbates home values.
As mentioned in the past, a record 3 million repossessed homes in 2010 has led to a flood in the amount of homes for sale. These unsold homes become a part of what is known as distressed mortgages or the shadow housing inventory. The current shadow inventory accounts for a third of the entire housing market and experts estimate it will take at least four years to clear this backlog of properties. In other words, a massive quantity of available homes saturates the housing market.
Simultaneously, new home sales recently declined 17% to the fewest amount of monthly home sales since record keeping began in 1963. Existing home sales also recently declined 10%. With declining home sales, the demand for homes is certainly on the descent, which is likely a result of two factors. The heightened unemployment rate of 8.8%, as well as the aging population of the country, both contribute to fewer prospective buyers and a lower demand for residential homes.
Without doubt, the recession within the US housing market persists. Moreover, a double-dip recession within home values is on the horizon. The current value of the twenty largest cities is only 1.1% above the April 2009 low. Therefore, if the negative trend within home values continues, which appears likely, home values will fall another 1.1% and confirm a double-dip recession within home values.