Home-Price Watchers Hope Drop Slows

This week's housing-market data won't erase the souring situation surrounding Fannie Mae and Freddie Mac, but could bear a silver lining if the rate of price declines shows signs of moderation.
By: MAYA JACKSON RANDALL: WSJ.com
This week's housing-market data won't erase the souring situation surrounding Fannie Mae and Freddie Mac, but there still might be a way to make lemonade.

Start with the S&P/Case-Shiller home-price-index report due out Tuesday. It will likely show continued price declines across the country as the housing slump drags on. Those are the lemons. To sweeten that up, look to the rate of price declines in hard-hit markets such as those in California and Florida. If the rate of declines slows, as some experts expect, there is your sugar.

The data are likely to be "negative pretty much across the board" and home prices are unlikely to bottom out until 2009 or 2010, said Mark Vitner, a Wachovia senior economist. But Mr. Vitner expects the rate of decline in home prices to begin to moderate "at some point in the second half of the year." That could signal the worst is behind us, though Mr. Vitner says he thinks the market could easily sit at the bottom for at least a year.

At the same time, it would be souring if the rate of declines accelerates. All eyes are already on Fannie and Freddie, and data showing home prices plummeting more than expected wouldn't help the mortgage giants.

"The more housing prices fall, the more foreclosures we get and the more each one of those costs Fannie Mae and Freddie Mac," says University of Maryland business professor Peter Morici.

The week is chockablock with housing data. Existing-home-sales data, released Monday, will be interesting to watch. While economists expect a slight uptick in sales, it could be bittersweet -- the result of troubled banks having to sell foreclosed homes at a deep discount. "I think the story there is simply that you have a lot of foreclosures and banks are pricing the homes so they sell," said Global Insight U.S. Economist Patrick Newport.

On Tuesday, the Office of Federal Housing Enterprise Oversight will release its monthly home-price data through June. Additionally, the Commerce Department Tuesday releases data on July sales of new homes. Last month's decline in sales was the fifth in six months.

To get a sense of what is ahead for the broader economy, turn to the Conference Board's consumer-confidence index Tuesday. It has been stuck at low levels, reflecting consumers' fears about high energy prices, a weak labor market, home values and borrowing costs. But the recent improvement in energy prices may give it a bump, says Wachovia's Mr. Vitner. At the same time, he notes the labor market has continued to weaken, which could keep confidence low. "It will be interesting to see what we get there," he says.