3Q Home Prices Down, Foreclosures Double

U.S. home prices marked a quarterly decline for the first time in 13 years in the third quarter, according to government data released Thursday that provides fresh evidence of the housing market slump.

The Office of Federal Housing Enterprise Oversight, the agency that oversees the big mortgage-finance companies Fannie Mae and Freddie Mac, said in its quarterly report that home prices dipped 0.4 percent nationwide in the July-September period, compared with the previous quarter.

A second report, from the Commerce Department, showed that new-home sales increased 1.7 percent in October from September. That left sales at a seasonally adjusted annual rate of 728,000. Even with the nudge up, sales have plunged 23.5 percent over the last 12 months. In September alone, sales dropped to a pace of 716,000, the lowest since 1996.

And U.S. foreclosure filings nearly doubled in October from the same month last year, the latest sign many homeowners are falling behind on mortgage payments and increasingly losing their homes, according to a mortgage research company.

Compared with the third quarter of 2006, FHEO's index of U.S home prices posted an increase of 1.8 percent, but it was the smallest year-over-year increase since 1995.

"While select markets still maintain robust rates of appreciation, our newest data show price weakening in a very significant portion of the country," agency director James B. Lockhart said in a statement. "Indeed, in the third quarter, more than 20 states experienced price declines and, in some cases, those declines are substantial."

Many of the cities and states experiencing the sharpest declines in the quarter were the same areas that had posted the sharpest increases a couple of years ago during the sizzling housing boom, the agency noted.

Price declines were steepest in California, Massachusetts, Michigan, Nevada and Rhode Island.

A total of 224,451 foreclosure filings were reported nationwide in October, up 94 percent from 115,568 in the same month a year ago, RealtyTrac Inc. said Thursday.

"We really are looking at a fairly significant problem where 45 of the 50 states are reporting increased activity in foreclosures in '07 compared to '06," RealtyTrac vice president Rick Sharga told CBS Radio News. "We're going to be looking at more than 2 million foreclosure filings on over 1½ million households before the year is over, and that's a pretty significant increase."

Ohio's foreclosure rate remained among the highest in the country.

"The states with highest number of foreclosure filings are states like California and Florida. Those are also two of the states with the highest rates of foreclosure activity, Sharga said.

The number of filings in October rose 2 percent from September's 223,538.

The U.S. had one foreclosure filing for every 555 households in October, RealtyTrac said.

Ohio reported one foreclosure filing for every 290 households. The state had 17,276 filings last month, up nearly 10 percent from September and 136 percent from October 2006.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

While the number of filings is still up year-over-year, it has leveled off in the last two months after hitting a high for the year in August.

Efforts by lenders under pressure to modify loan terms for at-risk borrowers could explain the slower sequential increase in filings, but the trend is likely more a result of a lag in filings after interest rate changes on adjustable-rate mortgages, said Sharga.

"What we probably did was come out of a reset cycle, but (the filings) have leveled off at a much higher level than before we got this point," Sharga said.

Meanwhile, the administration Thursday released an updated economic forecast that projects continued solid economic growth and labor market performance.

It assumes the continuation of the administration's pro-growth policies, including extension of the president's tax relief.

The growth forecast was revised up for this year, reflecting stronger-than-expected mid-year growth, but was lowered for next year due to recent financial market turmoil and continued difficulties in the housing sector.

"We continue to see signs of healthy economic growth, which only underscores the resilience of our economy despite continued challenges in the housing sector," said Edward P. Lazear, chairman of the Council of Economic Advisers. "We are entering a record fifth year of continuous job growth while the unemployment rate remains low and we believe that these trends will continue."