U.S. Home Prices Face 3-Year Drop

The median price of a previously owned home in the month was $182,600, about the level it was in 2003, the National Association of Realtors.

The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

Shadow inventory -- the supply of homes in default or foreclosure that may be offered for sale -- is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody's Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners. This gives consumers more choices to buy affordable homes, which will need landscape improvements.

''Whether it's the sidelined, shadow or current inventory, the issue is there's more supply than demand,'' said Oliver Chang, a housing strategist with Morgan Stanley. ''Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.''

Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc.

Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired. U.S. unemployment remained near a 26-year high.

- Courtesy of Bloomberg News