The big price rollback continues as home values in the nation's largest cities fall to 2004 levels and show no signs of stabilizing. "There's no hiding from...

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The big price rollback continues as home values in the nation’s largest cities fall to 2004 levels and show no signs of stabilizing.

“There’s no hiding from the bad news in this stuff,” Karl Case said Tuesday when the monthly Standard & Poor’s/Case-Shiller home-price index he helped create was released.

It revealed that third-quarter prices are down 16.6 percent year over year for the 20 metropolitan areas included in the index.

Seattle, which is among them, saw its prices decline 9.8 percent.

Case, an economics professor at Wellesley College in Wellesley, Mass., said two important economic factors — unemployment and foreclosures — are “rising very rapidly,” virtually ensuring house prices will remain volatile.

In recent months, the home-value decline has accelerated across the board and for individual cities.

The 20-city composite is down 3.5 percent from August to September, compared with a 2.2 percent dip from July to August.

Seattle-area prices rolled back 1.4 percent and 0.7 percent, respectively, during those two time frames.

Dallas and Charlotte, N.C., which have strong local economies, have replaced Seattle as the cities that seem relatively immune to the housing malaise.

But their house prices have fallen, too.

Calling the latest index results “pretty gloomy,” Case noted that the gloom isn’t spread evenly.

The Sun Belt cities it tracks are mostly “doing very poorly,” he said, while the others aren’t. He put Seattle in that second group.

On an annual basis, for example, third-quarter prices in San Diego, Los Angeles, Miami and Las Vegas were all down at least 25 percent. San Francisco also joined that group.

Boom and bust

What these cities have in common, observed David Blitzer, index committee chairman, is a strong pattern of boom and bust.

“The Sun Belt cities with the largest gains have had the largest declines,” Blitzer said.

Home prices in San Diego and Miami had tripled from their 2000 levels, so they had farther to fall.

Take San Diego. After a furious run-up, prices there peaked in November 2005. They’re back to the May 2003 level.

Seattle was coming off a technology-sector downturn early in the decade, which slowed housing demand, so it took longer for prices here to take off.

They didn’t climb as much as they did in Sun Belt cities did and they didn’t top out until July 2007.

Seattle’s prices have declined every month since, and are back to April 2006 levels.

No free-fall here

That degree of drop hardly qualifies as a free fall, Case said.

Additionally, the rise and fall of prices isn’t uniform even within cities.

“What stands out in many cities is that low-priced homes have seen the biggest increases and the biggest declines,” Blitzer said.

He attributes this to the explosion of “creative financing” — the subprime and option-ARM loans that helped marginally qualified buyers get into homes they otherwise could not afford.

Those homes usually were at the lower end of the price scale, and increased demand forced their prices up. But they were also the first homes to suffer foreclosures as loan rates rose and payments jumped.

Neighborhoods with numerous foreclosures are seeing prices fall, often dramatically, Case said. But places where foreclosures are scarce aren’t necessarily seeing the same thing.

“The traditional market is holding its own better than I would have thought,” Case said.

That may not continue as more people lose their jobs and fall behind on house payments.

“There is no cushion against unemployment,” Case said. “When that comes down the pike, we’re going to feel it.”

Much depends on how deep the job losses are and what steps the government takes to right the economy.

Case noted that 12 million homeowners owe more than their homes are worth. They’re most at risk of default on their mortgages.

However, 53 million owners are paying on time.

If a government bailout helps those underwater, some of those now struggling to pay their mortgages may consider this unfair and stop paying theirs, said Case, which would exacerbate the problem.

These complicated issues make it impossible to forecast with certainty how housing will perform in the coming year.

“Anyone who claims they know how far a market will go down is delusional,” Case said.

Elizabeth Rhodes: erhodes@seattletimes.com