The Case-Shiller home price index fell sharply in February. The 20-city index dropped significantly by 2.6% in February, which is not annualized. The index's fall has accelerated from the 2.3% drop in January and the 2.1% dip in both November and December. According to RBS Greenwich Capital, that works out to a 24% annualized home prices drop in the 20 cities measured for the November to February period. February marked the sixth consecutive month where every one of the 20 cities posted a monthly home price decline, said RBSGC analysts. Las Vegas, Phoenix, Miami, and all of the major cities in California registered the sharpest dips, the firm reported.

Given the "alarming data," RBSGC said that "it might be helpful to step back and try to put the current developments into perspective." Analysts said that home prices rose far faster than income over the 2003 to 2006 boom period, making homes much less affordable on average and "downright unaffordable for many." They explained that  this, in turn, pushed lenders, builders, and buyers to become more creative and permissive, leading to the cohorts of bad loans that are now coming home to roost. This is why during this time of a precipitous fall in home prices, it might be helpful to mark up a progress report on home prices relative to income, analysts said.

According to RBSGC, the bottom line is that home prices remain too high, although there is a dim light at the end of the tunnel. There was a time a year ago when it was hard to see how prices "were going to get from here to there, but it never pays to underestimate the ability of markets to clear (apparently, even real estate markets, which have historically been notoriously illiquid and slow to adjust)." 
Analysts suggest for market pariticipants to just keep watching the sales numbers, because these are very telling as to when borrowers deem prices as reaching rational levels. "Sales will stabilize (and possibly rebound, but let's not get too ambitious)," analysts said. RBSGC expects this key step to happen very soon, with a slackening in the pace of home price dips to follow later this year.

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