Home Prices Drop for the First Time in 7 Months

A new industry report released on Tuesday revealed that home prices fell for the first time in seven months in November 2009. According to the S&P/Case-Shiller 20-city home price index, the month-over-month price was down 5.3 percent compared with a year prior.

Losses: Data Explained

Experts had predicted that the prices would have dropped by only 5 percent, so the drop was unexpectedly high. A spokesman from Standard & Poor’s (S&P) said that the drop provided a picture of contrast between month-over-month home price fluctuations as compared to year-over-year declines, which show drops in home prices. But compared to the year prior, the percent is shrinking.

State-by-State Comparisons

The markets that showed month-over-month gains in home prices included Phoenix, Ariz., which saw a 1.1 percent average increase over a 12-month period. Chicago, on the other hand, saw a 1.1 percent average decrease over the same 12-month period.

The numbers for month-over-month gains are averaged as a seasonally-adjusted rate, which means that unavoidable increases and decreases in home prices due to outside factors unrelated to what would normally affect home prices was taken into consideration.

Why Are Home Prices Important

While it may be a great thing for home prices to drop for those who are looking to buy, lower home prices can be a nightmare for sellers, as well as the entire housing market. Imagine buying a home for $200,000 then having the home value drop to $140,000.

This means that not only is the home buyer upside down (or underwater) on his mortgage, but selling at a price that’s reasonable to the homeowner could be almost impossible.

With home prices showing that, year-over-year, the drop in home prices is getting better may mean that on the whole the market is improving. However, if you’re a buyer looking for a home, it may be a good idea to try to get into a home before prices make a drastic leap – and the home buyer tax credits expires.