By Les Christie, staff writerFebruary 22, 2011: 2:02 PM ET<\/p>\n
NEW YORK (CNNMoney) — Home prices took a big hit at the end of 2010, even as the rest of the economy gained steam.<\/p>\n
National home prices fell 4.1% during the last three months of 2010, compared with 12 months earlier, according to the latest report from the S&P\/Case-Shiller home price index, a closely watched indicator of market trends. They were down 1.9% compared with three months earlier.<\/p>\n
“Despite improvements in the overall economy, housing continues to drift lower and weaker,” said David Blitzer, spokesman for S&P.<\/p>\n
And things may get a lot worse, said Robert Shiller, a Yale economist and half of the Case-Shiller team, in a web conference after the report’s release.<\/p>\n
“There’s a substantial risk of home prices falling another 15%, 20% or 25% more,” he said.<\/p>\n
Shiller cited a few reasons for his bearish stance. <\/strong>The government is expected to reduce the presence of Fannie Mae and Freddie Mac in the housing market. These agencies currently provide loan guarantees for about two-thirds of mortgages. If they fade away, private mortgage money will have to fill the gap and the cost of mortgage borrowing will surely rise. That will hurt home prices.<\/p>\n There’s also talk of possibly ending the mortgage interest tax deduction for many homeowners. Meanwhile, the weak economic recovery may be threatened by higher oil prices as a result of turmoil in the Mideast.<\/p>\n At the web conference, Shiller’s index partner Karl Case wasn’t much more optimistic.<\/p>\n “I see [the market] bouncing along the bottom with a slight negative trend,” said Case, an economics professor emeritus at Wellesley College.<\/p>\n On a seasonally adjusted basis, the national index surpassed the low it hit in the first quarter of 2009.<\/p>\n The decline was widespread, with 18 of the 20 large cities covered by a separate S&P\/Case-Shiller index recording losses for the year. The only gains were posted by Washington, which was up 4.1%, and San Diego, which saw prices climb 1.7%.<\/p>\n The biggest loser for the year was Detroit, where prices dropped 9.1%.<\/p>\n “We’re really close to being at the bottom again,” said S&P’s Maureen Maitland. “Last year’s gains came courtesy of the tax incentives and the market is not holding up on its own.”<\/p>\n The impact of\u00c2\u00a0homebuyer tax credits<\/a> ended back last spring, and the two quarters of data since then reflect that. Prices fell steeply during the third quarter, down 3.3%. When the credit was in effect, prices rose consistently, up four out of five quarters starting in the second quarter of 2009.<\/p>\n S&P reported that both the company’s 10- and 20-city indexes also fell month over month. In three cities,\u00c2\u00a0Detroit, Cleveland and Las Vegas<\/a>, home prices have dropped below their January 2000 levels — yes, you’d have to go back to the past millennium to find lower prices there.<\/p>\n Eleven markets, including\u00c2\u00a0New York and Chicago<\/a>, have reached their lowest levels since home prices peaked in 2006 and 2007.<\/p>\n The losses were not unexpected, according to Brad Hunter, chief economist for Metrostudy, a housing market research firm.<\/p>\n “It’s clear now that, going back to last fall, the apparent strength was a false strength,” he said. “Now that the tax credits are gone, we’re back to where the training wheels are off, to normal consumer demand.”<\/p>\n He expects home prices to decline gradually throughout 2011, with markets picking up only when hiring increases substantially.<\/p>\n