What is a house worth today ?

With all the news of still-declining home prices, most buyers are keeping their feet firmly planted on the sidelines unless they’re sure they’re getting a bargain.





At the same time agents and banks are battling (mis)perceptions in their local markets, where property values may not be on such a slippery slope.

Add to the equation a distressed property, and finding an agreeable short sale price while still covering enough of the outstanding mortgage debt to be acceptable to the lender can be a challenge.

It’s a nasty tug-of-war, with neither buyers or sellers feeling like they’re gaining any ground.

As Patrick Newport, U.S. economist for the research firm IHS Global Insight, put it, “[T]he vicious cycle in which falling prices lead to more foreclosures which lead to even lower housing prices, continues to play a role in keeping housing on the mat.”

Newport suspects that we’re in for more of this circling sequence. “Are we nearing the end of falling house prices? Probably not,” he said.

His firm is forecasting home prices to drop at least another 5 to 10 percent before turning around in the second half of 2011.

Should that happen, it’s safe to say the dreaded double-dip will have arrived. Details released Tuesday on the S&P/Case-Shiller home price index indicates that several major markets have already hit that mark and at the

national level, prices are just a hundredth of a point away from it.

The 20-city composite reading of the latest S&P/Case-Shiller home price index fell another 1.1 percent in February when compared to the previous month. It’s down 3.3 percent from a year earlier. [ DSNews.com’s full coverage of the Case-Shiller report can be accessed here. ]

Perhaps even more disconcerting is that a separate analysis of home prices using the Case-Shiller data suggests they have another 20 percent further to fall to reach the equilibrium level which, since the 1950s, the market has historically reverted to following a boom.

Market analyst Barry Ritholtz has posted a graphic on his blog The Big Picture, illustrating the history of home values going all the way back to 1890, with the data adjusted for inflation. The chart was originally developed by Robert J. Shiller, namesake of the Case-Shiller index. Ritholz has updated it to incorporate home price stats from the last five years.

The graph chronicles the housing booms following the World Wars, the 1970s boom, the 1980s boom, and the most recent boom. It illustrates the sheer and extreme vastness of the last bubble and suggests there’s still a ways to go before the market fully self-corrects to that baseline of balance it’s been known to seek out.

“House prices have started to drop at a faster pace and on some indices are now falling at rates not seen since the financial crisis,” according to Paul Dales, senior U.S. economist for Capital Economics.

“In contrast to most forecasters, we always thought that prices would fall throughout this year, by at least 5 percent. That forecast is looking increasingly realistic,” Dales said.

He contends that the renewed decline in prices has a lot to do with the depressing effect of many forced foreclosed sales.

“With the foreclosure pipeline still full to bursting, there is risk that a vicious circle of rising foreclosure sales and falling prices develops,” Dale added. “If so, there is a real risk that prices could slide by more than our current 5 percent forecast.”

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