US HOME prices probably dropped in October, a sign housing will remain a weak link as the country’s recovery accelerates into the new year, economists said before reports this week.

Property values in 20 cities were down 0.2 per cent from October 2009, the first year-over-year decline since January, according to the median forecast of 14 economists surveyed by Bloomberg News ahead of a report from SP/Case-Shiller in two days. Other data the same day may show consumer confidence rose to a seven-month high in December.

A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011, representing a risk to household finances. Rising equity values and an improving job market will probably help offset the damage, ensuring that confidence and spending continue to climb.

“The inventory overhang is so big, with foreclosures looming, it’ll take five years to absorb the supply,” said Paul Ballew, chief economist at Nationwide Mutual Insurance Company in Columbus, Ohio. “The consumer is feeling better although there is still a high level of caution and anxiety.”

Economists surveyed projected the gauge of residential real-estate values would decline 0.7 per cent in October from the previous month, when it fell 0.8 per cent. The index was down 29 per cent in September from its July 2006 peak.

The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

Reports earlier this month showed the housing market is stuck near recession levels even as the broader economy is recovering. Housing permits fell in November to the third-lowest level on record, while housing starts rose for the first time in three months, the US commerce department said. – (Bloomberg)