The Case-Shiller Home Price Index fell 0.5% in November marking the fifth consecutive monthly price decline following gains in the each of the three months of the second quarter. On a year-over-year basis, the index has declined 1.6% in November after a 0.8% drop in October. Moving back in time, the Case-Shiller Home Price Index posted year-to-year gains in each month during the February-September 2010 period, reflecting the positive influence of the first-time home buyer credit program.

Details show that 19 out of the 20 metro areas posted lower home prices in November 2010 vs. October 2010. On a year-to-year basis, only four metro areas (San Diego, Los Angeles, San Francisco, and Washington DC) posted gains. More importantly, prices of homes in seven metro areas (Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland, Seattle, and Tampa) posted new lows for home prices since their peaks in 2006 and 2007. The FHFA's house price index also sends a message similar to that of the Case-Shiller Home Price Index (see Chart 3).

The Case-Shiller 20 and 10 metro area indexes have both dropped to levels last seen in 2003 (see Chart 4). The staggering and persistent drop in home prices is troubling for the FOMC focused on raising growth. If home prices continue to maintain a downward trend, additional homes will be under water and net worth of households will suffer a setback. This will set forth a vicious cycle that is not all too favorable for the economy. At the cost of being repetitive, robust improvements in hiring hold the key to stability in the housing market.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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