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08-05-2010 , 07:16 PM
Rumors of another huge bailout in the housing market.

http://blogs.reuters.com/drudge.html
08-10-2010 , 10:44 AM
Spike in Failed Trades Forces Fed Back into MBS Market (From end of June)
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This week [end of June], the Federal Reserve Bank of New York Open Market Trading Desk began conducting a limited amount of agency mortgage-backed security (MBS) "coupon swap operations" in order to facilitate the timely settlement of agency MBS trades.

A coupon swap is a transaction conducted at market prices that involves the sale of one agency MBS with the simultaneous agreement to purchase a different agency MBS. Coupon swaps allow the Federal Reserve to sell agency MBS coupons that are not readily available for settlement in the market and simultaneously purchase a different agency MBS coupon that is more readily available for settlement.

The Federal Reserve uses coupon swaps as a tool to address temporary imbalances in market supply and demand. The New York Fed transacts agency coupon swaps only with primary dealers who are eligible to transact directly with it. Agency MBS coupon swaps WILL NOT reduce or increase the Fed's MBS inventory. FRBNY MBS FAQ

Plain and Simple: coupon swaps give the Fed the ability to sell primary dealers MBS coupons that are experiencing a shortage of deliverable loan supply. In exchange, primary dealers sell the Fed the same amount of MBS, but different coupon rates, specifically those being actively produced by loan originators (4.0s and 4.5s right now).
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WHY IS THE FED BEING FORCED TO INTERVENE IN THE TBA MBS MARKET?

A huge spike in failed trades over the past year, specifically in 5.0 and 5.5 MBS coupons.
08-10-2010 , 10:52 AM
Same link:
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From the FRBNY's Primer on Settlement Fails: A settlement fail occurs when MBS securities (MBS) are not delivered and therefore are not paid for on the scheduled settlement date. The transaction can be an outright sale or the starting or closing leg of a repurchase agreement. Fails are important because they expose market participants to the risk of loss in the event of counterparty insolvency. The prospect of such loss leads participants to devote resources to monitoring and controlling counterparty exposure and could, in an extreme case, lead them to limit their secondary market trading.
08-22-2010 , 04:42 PM
The fallacy of cheap home prices and the two income trap – dual income households underscore massive housing inflation. Nationwide home prices overvalued by 25 percent.
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Housing inflation has run at an elevated pace since the 1970s and ramped up starting in the 1990s. Yet what masked much of the pain was access to easy credit but also the rise of the two income household. The housing bubble is worse than many expect and probably for the wrong reasons. Many readers make the wrong assumption that because we are largely a two income household nation that home values had to rise simply because of this transition. It was a simple 2 plus 2 calculation. This is wrong and it is more likely that home values grew in the last decade more on the introduction of exotic mortgage products that didn’t rely on income measures. There is little debate that many cities in California are still in major housing bubbles. Yet nationwide home values are still overpriced by 25 percent. Let us examine why.
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In the 1950s and 1960s it was very doable for one blue collar job to support one household. That is, purchasing a home with a 30 year fixed rate with one blue collar income was not an extraordinary accomplishment. But what pushed the rate from 47% (of both spouses working) in 1967 to 67% today? Of course the obvious part is the rise of women in the workforce but the more sinister reality is that households now need two incomes just to stay within the middle class. It was more out of necessity.
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We have the same raw number of people working in manufacturing as we did in the 1940s! Of course our population has expanded dramatically over that time. It is amazing that 4 out of 10 Americans work in the low paying service sector (i.e., McDonalds, Wal-Mart, cashiers, etc). That is why the median household income of Americans is roughly $50,000 (in California it is roughly $60,000). Now given the large amount of dual income households, you can do the math on individual wages. The housing market inflation has been underplayed because you have dual income households working lower paying jobs. So yes, income has gone up but the per capita wage for each individual has gone down. Even with two incomes, the current price of housing in the U.S. is too high. That is why the Federal Reserve has done everything imaginable to keep rates artificially low. But guess what? Unless they can throw in a third income to the household people won’t be buying.
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The balance sheet of Americans has taken a major hit since the recession started. In fact, residential real estate values (the place where most have their net worth) have cratered by $6 trillion. But look at the above. The debt hasn’t adjusted. This has to do with banks not realizing the actual losses (i.e., shadow inventory, etc). Yet the reality is losses have occurred. And when you even run hypothetical scenarios you can understand why having two incomes isn’t a big win:

This is an interesting perspective. If you run through nearly each line item above, everything has gone up in price over this time. Don’t even start with healthcare or college costs because the chart would tilt right over. But even looking at mortgage payments and taxes, things have shifted. Also, with the single income household you didn’t need two cars or needed to pay for daycare/babysitting. These are added costs that come when per capita incomes have shrunk.

Now with many households becoming one income households yet again because of this recession, we see the tide rolling out and how bad things really are. Combine this with a tightening of credit access and the reality is revealed. Home values are still extremely expensive and have been covered up by dual income households and massive amounts of debt. Remove both of those and you get a very ugly economic picture.
08-24-2010 , 11:30 AM
CR - Existing Home Sales lowest since 1996, 12.5 months of supply
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This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July 2010 (3.83 million SAAR) were 27.2% lower than last month, and were 25.5% lower than July 2009 (5.14 million SAAR).


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The last graph shows the 'months of supply' metric.

Months of supply increased to 12.5 months in July from 8.9 months in June. A normal market has under 6 months of supply, so this is extremely high and suggests prices, as measured by the repeat sales indexes like Case-Shiller and CoreLogic, will start declining.


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Ignore the median price! Double digit supply and lowest sales rate since 1996 are the key stories.

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Existing Home Sales Plunge 27.2%, Record Drop, Trounce Expectations Of 13.4%, Lowest Number Since May 1995
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Hello Double DIPression my old friend. 3.83 million sales on 4.65 million expectation. Previous 5.37 million revised to 5.26. The chart says it all: lowest sales since May 1995, months supply largest since 1999.

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But have no fear, looney Realtor spin is here: NAR: July Existing-Home Sales Fall as Expected but Prices Rise

Keep in mind CR's admonition from above:

Quote:
Ignore the median price! Double digit supply and lowest sales rate since 1996 are the key stories.
08-24-2010 , 12:34 PM
So rich people drive up the median price because they make up a higher percentage of the market than they used to, correct?
08-24-2010 , 01:16 PM
Quote:
Originally Posted by RadioActive1
So rich people drive up the median price because they make up a higher percentage of the market than they used to, correct?
basically.

NAR says:
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Changes in the composition of sales can distort median price data.
The median sale price is a function of both changing home values and the changing composition of sold homes. So if fewer low priced/distressed houses sell (some would say this means more distressed stuff is being held by banks/big financial firms/GSEs/etc. that don't what to take the balance sheet hit to their mark to fantasy valuations), the median price can rise.

Median sale price is not a very good indicator of home value changes because its a conflation of changes in home values and changes in the mix of homes sold instead of just home values.

To state the obvious, maybe this (lack of low priced/distressed sales) is in part why total sales are so low and inventory so high? There are a lot more lower priced houses than there are McMansions (LDO).
08-25-2010 , 11:58 AM
Housing and Jobs: The Underlying Problems Are Re-emerging

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Existing Home Sales

Today’s report that existing housing sales plummeted 27% in July should not come as a surprise.

Consider the fact that we are coming off of the greatest boom-bust credit cycle in world history. The focus of that cycle was residential housing which resulted in massive overbuilding of homes. Now we are seeing the inevitable result of the housing boom — the housing bust which requires the liquidation of this malinvestment.

From 2001 to 2006 housing starts jumped 40%, from about 1.6 million units per year to 2.250 million units per year. That period coincided with a massive expansion of the money supply by the Fed. When the cheap money stopped, the ride ended, and projects that, but for the cheap money were unprofitable, went broke.

The liquidation phase is never pretty but it is necessary for recovery. And that is why the government has been unable to prop up the housing market, except temporarily though tax credits. You can’t push a string as they say, and the inevitable process of liquidation is continuing after the tax credits expired in April.

According to the National Association of Realtors report, demand for existing single-family housing dropped to a 15 year low. The 27% drop was the biggest one-month drop since 1968. Sales dropped 29.5% in the Northeast, 22.6% in the South, 25% in the West, and 35% in the Midwest. June sales figures were revised downward to 5.26 million homes from 5.37 million previously reported.
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The job situation is weakening again because the underlying problems are reasserting themselves after the Fed and the government tried to paper over the problem with monetary and fiscal stimulation. Those policies have failed and underlying issues remain: local and regional banks’ balance sheets are still tied up with bad loans related to commercial real estate, slow liquidation of excess housing, falling consumer demand, increased personal savings, deleveraging by consumers and companies, and business uncertainty caused by major legislation.

These factors have resulted in a limitation on lending, a lack of credit demand, a declining money supply, and deflation. The government has done everything in their monetarist-Keynesian playbook to prevent a resolution of the underlying problem, but it only delayed recovery, making it worse for those who are unemployed. And that is why unemployment will rise further until these underlying problems are resolved.
08-30-2010 , 05:47 PM
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Back in 2005, your garden variety resale transaction accounted for more than 80% of all home sales. By November of 2006 that had slipped slightly to 78% while New Homes accounted for nearly 20% of all transactions (a peak share). Just over 2 years later in January of 2009, the new home share had slumped to 14%, and starting in that month there were more REO sales in the preceding 12 month period than new homes sold. So for the last year and a half, banks have sold more houses than home builders have.
10-19-2010 , 01:14 AM
10-19-2010 , 06:24 AM
My dog ate it?
11-02-2010 , 10:11 AM
11-04-2010 , 11:26 AM
Market Prices In QE 7 As S&P Says Cost To Resolve GSEs Could Approach $700 Billion, Double FHFA Estimate

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Two weeks ago, the FHFA, using Moody's assumptions and modelling, said that a worst case scenario for Fannie and Freddie could result in total costs to taxpayers of $363 billion, an incremental $220 billion to the $148 billion already spent to keep the nationalized housing branch of the US government. Today, S&P has released a stunner which says that actually fixing the GSEs, and "resolving and relaunching" the bankrupt entities, would actually cost as much as $685 billion, or over another half a trillion in taxpayer costs. And as for the reason why the market is surging, and will be until the US annexes Zimbabwe, now that it is pricing in QE 7, S&P says that according to its estimates, the backlog of shadow inventory is 40 months! Tomorrow: another trillion dollar capital defficiency hole, uncovered somewhere in the ponzi that is the US economy, will cause QE 8 to be priced in. And so on.

From S&P:
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As Standard & Poor's Ratings Services sees it, the problems in the U.S. housing market are far from over. Moreover, with a growing portfolio of unsold homes, a sluggish economy, stubbornly high unemployment, the prospect of rising foreclosures, and billions in legacy losses, it appears unlikely in our view that housing and mortgage markets will be able to operate normally without continuing and substantial government involvement. That will likely mean further taxpayer support for Freddie Mac and Fannie Mae, the government-sponsored enterprises (GSEs) that, along with the Federal Housing Administration, now buy more than 90% of all home loans compared to less than half before the crisis.

That support has so far come at a price, which we believe is likely to rise substantially. Standard & Poor's estimates that the ultimate taxpayer cost to resolve Fannie Mae and Freddie Mac could reach $280 billion, including the $148 billion already invested--money largely spent to make good on loans gone bad. (Both GSEs are already in receivership.) That $280 billion, however, could swell to $685 billion, by our estimate, with the establishment of a new entity to replace Fannie and Freddie that the government would initially capitalize. Although federal authorities have taken no concrete public steps toward sponsoring a GSE alternative, , Standard & Poor's believes that it's a useful exercise to consider how much such a recapitalization might cost taxpayers....
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A Backlog Of Unsold Homes Is Exacerbating The Housing Slump

The U.S. housing market remained in a severe slumpthrough the first three quarters of 2010. As a result, we see very little momentum toward a more steady housing market in 2011. Despite reports of stabilizing mortgage delinquencies at Fannie and Freddie, we believe there is significant uncertainty related to the build-up in inventory, which is likely to continue to keep home prices down (see chart).

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11-04-2010 , 11:28 AM
12-22-2010 , 03:17 PM
Research Department of the Federal Reserve Bank of Dallas - The Fallacy of a Pain-Free Path to a Healthy Housing Market

The bubble

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In the mid-1990s, the public policy goal of increasing the U.S. homeownership rate collided with a huge leap in financial innovation. Lenders shifted from originating and holding mortgages to originating and packaging them for sale to investors. These new financial products enabled millions of Americans who hadn’t previously qualified to buy a home to become owners. Housing construction boomed, reaching a postwar high9.1 million homes were built between 2002 and 2006, a period when 5.6 million U.S. households were formed.

The resulting oversupply of homes presents policymakers with a formidable challenge as they struggle to craft a sustainable economic recovery. Usually a driver of economic recoveries, the housing market is foundering as an engine of growth.

Generations of policymakers since the 1930s have sought to increase the homeownership rate. By the late 1960s, it had reached 64.3 percent of households, remaining there through the mid-1990s, in apparent equilibrium with household formation during a period of sustained U.S. economic growth. A fresh push to increase ownership drove the rate up 5 percentage points to its peak in the mid-2000s. Home price gains followed the rate upward.
Fighting the market and not winning

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Reverting to the Mean Price

As gauged by an aggregate of housing indexes dating to 1890, real home prices rose 85 percent to their highest level in August 2006. They have since declined 33 percent, falling short of most predictions for a cumulative correction of at least 40 percent.[1] In fact, home prices still must fall 23 percent if they are to revert to their long-term mean (Chart 1). The Federal Reserve’s purchases of Fannie Mae and Freddie Mac government-sponsored-entity bonds, which eased mortgage rates, supported home prices. Other measures included mortgage modification plans, which deferred foreclosures, and tax credits, which boosted entry-level home sales.
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Too much debt. Policymakers can't keep pulling demand forward.

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The fact that many mortgage holders have negative equity in their homes stymies modification efforts. In the case of HAMP, the cost of carrying a house must be reduced to 31 percent of the owner’s pretax income. Even if permanent modification is achieved, adding other debt payments to arrive at a total debt-to-income ratio boosts the average participant’s debt burden to 63.4 percent of income. In many cases, the financial innovations of the credit boom era, enabling owners to monetize home equity, encouraged high aggregate debt.

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Absent incentive programs and as modifications reach a saturation point, these price increases will likely be reversed in the coming years. Prices, in fact, have begun to slide again in recent weeks. In short, pulling demand forward has not produced a sustainable stabilization in home prices, which cannot escape the pressure exerted by oversupply
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Too much supply, housing is still fragile and propped up, and it isn't clear their is an easy, or even any, policy solution. Go Dallas Fed Research Department.

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Lingering Housing Market Issues

About 3.6 million housing units, representing 2.7 percent of the total housing stock, are vacant and being held off the market. These are not occasional-use homes visited by people whose usual residence is elsewhere but units that are vacant year-round. Presumably, many are among the 6 million distressed properties that are listed as at least 60 days delinquent, in foreclosure or foreclosed in banks’ inventories.

Recent revelations of inadequately documented foreclosures and the resulting calls for a moratorium on foreclosures—what was quickly coined “Foreclosuregate”—threaten to further delay housing market clearing. While home price declines may be arrested as foreclosure paperwork issues are resolved, the buildup of distressed supply will only grow over time. Perhaps less obviously, some lenders with the means to underwrite new mortgages will remain skeptical about the underlying value of the collateral.

With nearly half of total bank assets backed by residential real estate
, both homeowners on the cusp of negative equity and the banking system as a whole remain concerned amid the resumption of home price declines.[8] This unease highlights the housing market’s fragility and suggests there may be no pain-free path to the eventual righting of the market. No perfect solution to the housing crisis exists. The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress.
12-23-2010 , 12:10 PM
It's like Jim Carrey fighting with himself in Me, Myself and Irene.
12-28-2010 , 04:37 PM
Housing Prices Commence Their Downward Price Movement In Search Of Equilibrium Scraping Depression Levels

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Anyone who regularly follows me knows that I have been adamant in disagreeing with any who actually assert that the US has entered a housing recovery. The bubble was blown too wide, supply is too rampant, with demand too soft and credit tighter than frog ass. Today, the Case Shiller numbers have come out, and after a few months of showing price increases, have come around full tilt to reveal the truth – Reggie Middleton style!

From CNBC:
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U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment, data from a closely watched survey showed Tuesday. AP The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 1.0 percent in October from September on a seasonally adjusted basis, a much steeper drop than the 0.6 percent fall expected by economists. The decline built on a revised decrease of 1.0 percent in September and took prices down 0.8 percent from year-ago levels. It was the first year-on-year drop in the index since January. The housing market has been struggling since home buyer tax credits expired earlier this year. To take advantage of the tax credits, buyers had to sign purchase contracts by April 30.

“The (housing) double dip is almost here [there was no double dip, just a result of .GOV bubble blowing] , as six cities set new lows for the period since 2006 peaks. There is no good news in October’s report,” said David Blitzer, chairman of the index committee at S&P.

Eighteen of the 20 cities showed weaker year-on-year readings in October and all 20 cities showed monthly price declines.

Unadjusted for seasonal impact [in other words, closer to the truth], the 20-city index fell 1.3 percent in October after a 0.8 percent decline in September.
To begin with, the Case Shiller index is highly flawed in tracking true price movement in a downturn such as this since said downturn is being led mostly by elements that the CS index purposefully omits. This means that those price drops that are being shown by the Case Shiller index are actually highly optimistic and seen through spit shined rose-colored glasses. The reality is a tad bit uglier...
Plus fun images like:


12-28-2010 , 05:37 PM
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Hopefully today's 4th consecutive decline in home prices, as per the earlier noted Case Shiller October data (and with both mortgage rates and foreclosure inventory surging, we are willing to bet that following the reported November and December CS data, the decline will be for half a year straight), makes it sufficiently clear that housing has double dipped, and that the primary goal of Bernanke, which is not to pad banker bonuses, but to reflate home prices and recreate that mythical HELOC "fake wealth effect" piggybank, has been a complete failure (he sure is succeeding in getting WTI about to soon hit $100/barrel). Just in case there are any doubters left, Nouriel Roubini sat down with CNBC's netnet to confirm what virtually everyone else already knows: "It's pretty clear the housing market has already double dipped," per Nouriel, who recently took advantage of the NYC housing downturn and bought a $5.5MM pad. "And the rate of decline is stronger than in previous months" - precisely what we pointed out a few hours back. In other words, the double dip is accelerating. Today's jump in 10 and 30 Y rates will not help.

Furthermore, another rather obvious observation by Roubini demonstrates precisely why the drop in home prices is just starting to be felt: "The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year." In other words, "Supply will increase, demand will drop."...
link
01-12-2011 , 12:21 PM
Home price drops exceed Great Depression: Zillow

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(Reuters) - Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.

Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month.

It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates. Many economists expect further price drops, even if there are some anecdotal signs of growing demand, such as in pending home sales data.

"For the next six to nine months, the larger factors affecting the housing market that will produce more home price declines will be the excess inventory of homes, high negative equity and foreclosure rates, and weakened demand due to elevated employment, Stan Humphries, Zillow's chief economist, said in a blog post.
02-03-2011 , 10:43 AM
Nearly 11 Percent of US Houses Empty

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America's home ownership rate, after holding steady for a while, took a pretty big plunge in Q4, from 66.9 percent to 66.5 percent. That's down from the 2004 peak of 69.2 percent and the lowest level since 1998.

Homeownership is falling at an alarming pace, despite the fact that home prices have fallen, affordability is much improved and inventories of new and existing homes are still running quite high.

Bargains abound, but few are interested or eligible to take advantage.

More concerning than the home ownership rate is the vacancy rate. The Census tables don't tell the entire story, but they tell a lot of it. Of the nearly 131 million housing units in this country, 112.5 million are occupied. 74.8 million are owned, and that's only dropped by about 30 thousand in the past year. 38 million are rented, but that's up by over a million year over year. That means more new households are choosing to rent.

Now to vacancies. There were 18.4 million vacant homes in the U.S. in Q4 '10 (11 percent of all housing units vacant all year round), which is actually an improvement of 427,000 from a year ago, but not for the reasons you'd think.

The number of vacant homes for rent fell by 493 thousand, as rental demand rose. 471,000 homes are listed as "Held off Market" about half for temporary use, but the other half are likely foreclosures. And no, the shadow inventory isn't just 200,000, it's far higher than that.
02-03-2011 , 10:45 AM
Home Prices Sink Further
Declines Reported in All 28 Major Metropolitan Areas; Unsold Inventory Piles Up


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Home values are falling at an accelerating rate in many cities across the U.S.

The Wall Street Journal's latest quarterly survey of housing-market conditions found that prices declined in all of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier.

The size of the year-to-year price declines was greater than the previous quarter's in all but three of the markets, the latest indication that the housing market faces considerable challenges.

Inventory levels, meanwhile, are rising in many markets as the number of unsold homes piles up
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