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"Goldman Sachs figured that prices in California are about 35% to 40% overvalued"

Home prices falling at record pace in August
Down 4.4% over the past year in 20 major cities, Case-Shiller says
By Rex Nutting, MarketWatch
Last Update: 11:29 AM ET Oct 30, 2007

Prices were down 4.4% in the past year, the fastest decline in the seven-year history of the 20-city index. In the original 10-city index, prices have fallen 5% in the past year, the biggest decline since 1991. "The fall in home prices is showing no real signs of a slowdown or turnaround," said Robert Shiller, co-creator of the index and chief economist for MacroMarkets, in a release.

With supply overhang growing and mortgage financing tougher to obtain, home prices are going to soften considerably further in the quarters ahead," wrote Joshua Shapiro, chief U.S. economist for MFR Inc. The last time prices fell so much, it took more than eight years for home prices to return to their peak level.

The Case-Shiller index, which tracks multiple sales of the same homes, is considered by many observers to be the best gauge of national and metropolitan-area real-estate values. Falling prices make it more difficult for homeowners to tap the equity in their homes or refinance their mortgages. Millions of homeowners who took out adjustable-rate loans in 2005 and 2006 face sharply higher mortgage payments this year and next, with foreclosures having already soared as the result of payment resets.

Prices could fall much further. In a separate report, analysts at Goldman Sachs figured that prices in California are about 35% to 40% overvalued, compared with past relationships between home prices and income growth. The median sales price of a home in California was $589,000 in August, Goldman said, but should be around $375,000, they said. Here are the year-over-year nominal price changes for the 20 cities covered by the index: Tampa, down 10.1%; Detroit, down 9.3%: San Diego, down 8.3%; Phoenix, down 8%; Miami, down 7.8%; Las Vegas, down 7.6%; Washington, D.C., down 7.2%; Los Angeles, down 5.7%; San Francisco, down 4.2%; Cleveland, down 4.1%; Minneapolis, down 4%; New York, down 3.8%; Boston, down 3.6%; Chicago, down 1.3%; Denver, down 0.4%; Dallas, up 0.5%; Atlanta, up 0.8%; Portland, Ore., up 2.8%; Charlotte, up 5.6%; and Seattle, up 5.7%. End of Story

Rex Nutting is Washington bureau chief of MarketWatch.

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