WASHINGTON (MarketWatch) -- U.S. home prices fell at a faster rate in the second quarter, down 3.2% compared with the same period in 2006, Standard & Poor's reported Tuesday.
It marked the largest year-over-year decline ever recorded in the 20-year history of the Case-Shiller home price index.
A year ago, home prices were rising at a 7.5% pace nationally.
"The pullback in the U.S. residential real-estate market is showing no signs of slowing down," said Robert Shiller, chief economist at MacroMarkets LLC, which computes the price index for S&P.
In an interview with MarketWatch, Shiller noted that the figures were for activity ending in June -- well before the more recent blowup in the mortgage markets.
Falling prices make it more difficult for homeowners to tap their home equity or refinance their mortgages. Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as a result of payment resets.
"This slow-burn downswing probably has a long way to go," wrote Charles Dumas, an economist for London's Lombard Street Research. "The backlog of unsold homes has reached a level at which buyers are likely to get nasty, insisting on deep price cuts. As repossessed homes come on the market over the next 18 months, downward pressure on home prices and whole neighbourhoods will intensify."
"We are fast approaching the rate of price decline seen at the end of the 1990-91 recession, and the odds strongly favor blowing past this mark in coming months," wrote Joshua Shapiro, chief economist for MFR Inc. "With supply overhang growing and mortgage financing tougher to obtain, home prices are going to soften considerably further in the quarters ahead."
The last time prices fell so much, it took more than eight years for home prices to return to their peak level.
Meanwhile, prices fell by 3.5% in the past year in 20 major cities as tracked by the index and by 4.1% in 10 major cities through June. It's the largest year-over-year decline in the 10-city gauge since July 1991. Read the full report from S&P.
In a separate report, the Conference Board said consumer confidence fell at the fastest rate in two years in August. See full story.
Pockets of strength in sea of weakness
Prices fell in 15 of the 20 cities in June compared with a year earlier, with the largest price declines concentrated in the industrial Midwest and in the once-bubbly markets along the coasts and in the desert West. Some metro areas in the Northwest and Southeast are still seeing prices rise, however.
Home prices have plunged 11% in Detroit, Mich., in the past year, followed by 7.7% in Tampa, Fla., and 7.3% in San Diego, Calif. On the other hand, prices have risen 7.9% in the Seattle metro region, with prices up 6.8% in Charlotte, N.C.
The annual growth rate slowed in 17 of 20 cities in June.
One bright spot could be Boston, which was the first metro area to show falling prices. Since the first of the year, the year-over-year decline in Boston has improved from a 5.5% decline in January to a 3.9% decline in June. Shiller said more data would be needed before he could say that Boston's real-estate market has turned.
The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metro real-estate values.
On Thursday, the Office of Federal Housing Enterprise Oversight will report its national home price index. As of the first quarter, the OFHEO index showed prices were up 4.3% in the past year.
The OFHEO index has never been negative on a year-over-year basis.
Like Case-Shiller, the OFHEO index tracks multiple sales of the same homes. However, OFHEO does not include homes with nonconforming mortgages, such as those with jumbo mortgages for more than $417,000.
Here are the 20 cities covered by the Case-Shiller index, ranked from worst to best:
Detroit, down 11%: Tampa, Fla., down 7.7%; San Diego, down 7.3%; Washington, down 7%; Phoenix, down 6.6%; Las Vegas, down 5.1%; Miami, down 4.8%; Los Angeles, down 4.1%; San Francisco, down 4%; Minneapolis, down 3.8%; Boston, down 3.7%; Cleveland, down 3.6%; New York, down 3.4%; Denver, down 1%; Chicago, down 0.7%; Atlanta, up 1.6%; Dallas, up 1.6%; Portland, Ore., up 4.5%; Charlotte, N.C., up 6.8%; and Seattle, up 7.9%. 
Rex Nutting is Washington bureau chief of MarketWatch. In This Story
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by HHBear
56 minutes ago
And let's hope it falls further. Prices need to come down a lot more before responsible borrowers can afford to buy homes again. By responsible, I mean a buyer who can put 20% down, verify his income with tax returns and pay stubs, and have 6 months of living expenses saved. The many who couldn't save raised the prices of homes who could. There was a good reason banks used this standard years ago to determine if they had a good chance of being paid back. For the sake of our economy and our credit markets, I hope we return to this standard.
by TMO72
4 minutes ago
Disagree. Forcing a person to save 20% as they did years ago, would plunge the housing market further into a state that would take years to recover. The ripple effects leading to a weaker economy. As a mortgage lender, I have seen the need for hard working individuals who want to be home owners, but with limited resources for a down payment, be able to purchase a modest home within their budget. The new standard needs to be and is becoming right now, low down payment programs with risk based mortgage insurance options, full income documentation for sub-standard credit, stated income documentation for borrowers with strong credit. Borrowers will adjust to these standards as home prices will adjust accordingly and the housing market will stabilize more sooner than later.