U.S. home prices tumble by record in third quarter

NEW YORK — Two widely watched indexes released today showed home prices dropping by the sharpest annual rate on record in the third quarter. But the worst may be yet to come as the full force of Wall Street's collapse hits the economy in the fourth quarter.

The Standard & Poor's/Case-Shiller U.S. National Home Price Index tumbled a record 16.6 percent during the quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

Seattle-area third-quarter prices declined 9.8 percent year over year, the index reported. And the decline is accelerating, a trend seen in other cities. Seattle's prices were down 1.4 percent from August to September, compared with a 0.7 percent drop from July to August.

"The real economy took a sharp turn for the worse toward the end of the third quarter. ... So as bad as the latest Case-Shiller numbers appear to be, they are bound to get much worse," said Patrick Newport, a U.S. economist at IHS Global Insight, in a statement.

During the third quarter, the government seize failed lender IndyMac, took over mortgage giants Fannie Mae and Freddie Mac and poured billions of dollars into flailing companies and the financial system. Several major banks also failed or were forced into takeovers during the period.

But despite these historic efforts, the housing recession appears to be deepening.

Karl Case, an economics professor at Wellesley College and co-creator of the Case-Shiller index, said he expects delinquencies and foreclosures to rise as unemployment increases, further pressuring the housing market.

The nation's unemployment rate is at 6.5 percent, a 14-year high, and is expected to climb higher. "That has yet to hit this report," Case said.

And already the numbers look grim.

For the month of September, the Case-Shiller indexes also clocked in record annual declines. The 20-city index fell by 17.4 percent in September compared with a year ago, the largest drop since its inception in 2000. The 10-city index plunged 18.6 percent, the biggest decline in its 21-year history.

Prices in the 20-city index have plummeted almost 22 percent since peaking in July 2006. The 10-city index has fallen more than 23 percent since its peak in June 2006.

The sharpest drops came out of the West. Phoenix posted the largest year-over-year decline in September of nearly 32 percent, while Las Vegas dropped 31 percent and San Francisco, nearly 30 percent. Miami, Los Angeles and San Diego all recorded annual decreases above 25 percent.

Seattle Times business reporter Elizabeth Rhodes reported the Seattle-area data.