WSJ: A double-dip in the Case-Shiller index may be coming

The Wall Street Journal warns that a decline in high-end home prices may cause a double-dip in the S&P/Case-Shiller Home Price Index:

The pace of home price declines tracked by the S&P Case-Shiller home-price index slowed for the third straight month in April. But the bloodletting may not be over.

Here’s why: If price declines accelerate for the mid-to-upper end of the housing market, then that could generate enough large declines in values—even among a small segment of the overall housing market—to push the index lower still.

Prices at the mid-to-high end are falling as job loss and the worsening economy have iced demand for higher-priced “move-up” homes. Also, tougher financing conditions have made it harder to get mortgages for “jumbo” loans on more expensive homes, and delinquencies are rising among jumbo borrowers, which could lead to an even greater oversupply of homes.

Independent housing analyst Ivy Zelman notes that such a “double dip” in the index in the second half of 2009 could materialize because the Case-Shiller index is value-weighted, which means that repeat sales of higher priced homes figure have an outsized impact. ...

So far, prices have fallen from their 2006 peak by 33% at the middle of the market, compared to 44% at the low end and 27% at the high end, according to Ms. Zelman.