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House prices suffer worst fall in index history

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NEW YORK (Reuters) - An index measuring U.S. house prices suffered its worst decline since its creation 20 years ago, and there is no sign of a bottom for the market, according to a report compiled by Standard and Poor's and economist Robert Shiller.

The S&P/Case-Shiller U.S. National Home Price Index fell 3.2 percent to 183.89 last quarter from the same period in 2006, its sharpest decline in the index's history dating back to 1987, S&P said in a statement. The pace of decline accelerated from 1.6 percent in the first quarter.

"The pullback in the U.S. residential real estate market is showing no signs of slowing down," Shiller, the creator of the index and chief economist at MacroMarkets LLC in Madison, New Jersey, said in the statement.

The report adds to recent indications that the housing slump that began in late 2005 may worsen.

On Monday, the National Association of Realtors said inventories of homes rose 5.1 percent in July, boosting the overhang of supply that tends to put downward pressure on prices. Reports this week on subprime mortgage securities show delinquencies on loans backing the bonds continued to rise in August.

Falling house prices are fueling concern that the economy may head toward recession as homeowners with little equity in their properties are unable to refinance adjustable-rate loans at better terms before monthly payments rise.

At the same time, lending in the past two months has been restricted to even "prime" borrowers, suggesting housing data will soften in the months ahead, economists said. Two-thirds of the nation's home builders said tighter underwriting standards have hurt business in the past month, up from a third in March, according to a National Association of Home Builders poll.

"Plainly, there will be worse to come when the heady cocktail of a large inventory overhang is mixed with tighter lending standards," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Shares of home builders fell on Tuesday, sending the Dow Jones U.S. Home Construction Index down 4 percent. Among losers, Standard Pacific Corp. fell 12.5 percent to $8.70, Centex Corp. dropped 6.3 percent to $28.37 and KB Home declined 5.1 percent to $28.64.

Economists at Goldman Sachs Group Inc., who forecast the S&P/Case-Shiller index will be down 5 percent on the year by the fourth quarter, said Tuesday's results create "downside" risks to their forecast.

"It does look like there's a bit of acceleration in the pace of decline and this comes before the credit crunch," said Andrew Tilton, an economist at Goldman Sachs in New York.

Separate S&P/Case-Shiller indexes of house prices across 10 and 20 major metropolitan areas also dropped. The Composite-20 index fell 3.5 percent in June from a year ago to 199.18, while the index measuring 10 regions slipped 4.1 percent to 217.07.

Home price declines appeared to accelerate in Florida and California cities, while weakness in Boston and Denver showed signs of improvement, Goldman Sachs economists said, based on the index and seasonally adjusted estimates. Cities showing gains included Seattle, Washington; Portland, Oregon; Dallas, Texas; Atlanta, Georgia; and Charlotte, North Carolina.

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