Home prices hit pre-boom level

NEW YORK – Damage from the housing bust is spreading to areas once thought to be immune.

In at least 14 major U.S. metro areas, prices are now at 2003 levels – when the housing bubble was just starting to inflate. Prices will likely fall further this year, making many people reluctant to buy or sell. That would push down sales and prices more.

The depressed housing industry is slowing an economy that has shown strength elsewhere. And it’s starting to hurt those who bought years before the housing boom began. In some cities, people who have paid their mortgages for a decade have little or no home equity.

Prices have tumbled in familiar troubled spots, such as Las Vegas, Cleveland and Detroit. But they’re also at or near 10-year lows in Denver, Atlanta, Chicago and Minneapolis – cities that weren’t as swept up in the housing boom and bust.

“It’s been tough on the lower class but it’s filtering up,” said Paul Dales, senior U.S. economist with Capital Economics. “It may be only a matter of time before it hits the wealthy.”

Just about the only major market weathering the second wave of the housing downturn is Washington, D.C. Home prices there have risen 11 percent in the past two years.

Weak home sales and falling prices are imposing a heavy burden on the economy, which has gained strength from higher consumer spending. Applications for unemployment benefits are at pre-recession lows. Manufacturing activity is growing at its fastest rate in seven years.

By contrast, sales of previously occupied homes are coming off the worst year in more than a decade. And new homes are selling at the slowest pace on records dating to 1963.

In part, the weakening prices show how much a home-buying tax credit stimulated sales in late 2009 and early 2010. Once those tax credits expired in April, many markets began a decline that shows no sign of stopping. Some economists say the tax credits merely postponed the bottoming out that’s occurring now.

Millions of foreclosures and short sales are largely to blame. Short sales occur when lenders let homeowners sell for less than they owe on their mortgage. These cut-rate sales have left a glut of discounted properties in many markets. Prices won’t stop falling until they are cleared – and many of them are undesirable.

The supply of homes for sale in the Minneapolis-St. Paul metro area has plummeted 26 percent over the past year, according to the Minneapolis Area Association of Realtors. And those still being sold now fetch an average of just 88 percent of the listing prices.

Over the past year, prices for the most affordable homes have fallen by 7.5 percent, compared with a 5 percent drop for middle-tier homes and a 2.3 percent decline for the most expensive properties.