Builders Wonder If The Double Dip In Prices Will Include New Homes

The fear that home prices will continue to fall over the next several months appears to have gripped economists who insist that a “double dip” in home values is either inevitable or already in motion, despite recent signs of recovery in the general economy. However, there is also evidence that prices for new homes—which generally aren’t included in the widely watched housing indices—are stabilizing. Some large production builders have had success raising their prices (see chart below), although it’s hard to gauge whether that trend is sustainable on a broader scale when so few new homes are currently being sold—only 290,000 units on an annualized basis through November, according to Census Bureau estimates. Some economists have been predicting for months that the housing market wasn’t finished adjusting to the stark realities of weak buyer demand, a surfeit of unsold existing homes and an ongoing deluge of foreclosures. “We should expect house prices to continue to fall, with nationwide prices dropping another 15 to 20 percent to complete the process of deflating the bubble,” wrote Dean Baker, co-director of the Center for Economic and Policy Research, in the New York Times last August. The latest release of the Standard & Poor’s/Case-Shiller Housing Index, in which all 20 markets tracked showed month-to-month and year-to-year price declines in October, confirmed for some economists a trend they have been dreading. That includes S&P’s David Blitzer, who uttered the words “double dip” in his comments on the index’s findings. “It’s pretty clear the housing market has already double dipped,” Columbia University economist Nouriel Roubini told CNBC after the Case-Shiller data came out. “And the rate of decline is stronger than in previous months.” Roubini was one of the first economists to foresee an implosion of the housing bubble.

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