Home Prices Down a Record 10.7% but Wall Street Yawns

Home prices fell the most on record in January while consumer confidence in the U.S. economy plunged this month, according to separate reports published yesterday.

While the reports reaffirmed pessimistic views that the country has entered a recession or is at least in a severe downturn, Wall Street greeted the news with a collective ho-hum.

The blue-chip Dow Jones industrial average, which has swung widely in recent weeks, fell just 0.13 percent.

Some traders said they expected calm in U.S. markets after the events that followed the near-collapse of investment bank Bear Stearns two weeks ago. J.P. Morgan Chase and the Fed on Monday agreed on a revised $10-per-share sale price for the investment bank after Bear Stearns shareholders balked at a $2-per-share agreement.

“There are still some concerns on credit worries and foreclosures, and I think that is going to weigh on the market,” said James H. Herrick, director of equity trading at Robert W. Baird. “But after last week, I think investors are taking a much-needed rest and reassessing their portfolios.”

Home prices in 20 metropolitan areas were down 10.7 percent in January from January 2007, according to the S&P/Case-Shiller index.

Sixteen of the 20 metropolitan areas posted record declines. Home values in the Washington area were down 10.9 in January from a year earlier. The average sale price of a Washington area home in January was $212,830, according to the report.

On Monday, the National Association of Realtors said sales of existing homes rose 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. That was the biggest increase in a year.

Economists said that, taken together, the two reports on housing could indicate that the slump is approaching its nadir.

If past housing cycles are a guide, “prices will continue to fall even as sales pick up, and that’s because in the hardest-hit areas — in the most overbuilt, speculative markets — there is still so much supply,” said Christopher Low, chief economist with FTN Financial.

Consumer confidence in the economy plummeted this month, according to the Conference Board index. The indicator, which is based on a survey of 5,000 U.S. households, fell 11.9 points from February to a five-year low of 64.5. Analysts had predicted a reading of 73.0, and the rapid decline in confidence could affect consumer spending significantly in the coming months.

Economists attributed the drop in confidence to a combination of dour economic news in recent weeks and rising gasoline prices.

“There is a drumbeat of bad news and now you have politicians in an election year beginning to tell us how bad we should feel about everything,” said Dan North, chief economist of Euler Hermes ACI. “But I also think the cost of gas is a real factor. We have a record inflation-adjusted price for oil, and I really do think that is starting to hurt people.”

The Dow fell 16.04 points to close at 12,532.60. The Standard & Poor’s 500-stock index rose 3.11, or 0.23 percent, to 1352.99. The Nasdaq composite index rose 14.30, or 0.61 percent, to 2341.05.

Via Washington Post