Still No End in Sight for Falling U.S. House Prices, Says Scotiabank Report

U.S. house prices still have room to fall, according to a report on real estate trends issued by Scotiabank economists.

The report notes that while the rate of decline has moderated since the spring, sales in the month of June fell to 5.4 million units, a 35% decline since prices hit their peak in 2005.

"The potential for a meaningful turnaround in home sales is limited when soaring gas prices and mounting job losses are severely straining household finances," said Adrienne Warren, Senior Economist at Scotia Economics.

According to the report, the hike in long-term mortgage rates, coupled with tightening credit conditions, has left many potential home buyers out of the equation. However, home and construction prices are expected to continue to fall due to an oversupply of houses available on the market.

"The outstanding inventory of existing homes for sale stood at 4.5 million units in June, or 11 months' supply at the current sales pace. There were an additional 426,000 new single-family homes for sale, or 10 months' supply. A supply of around 6 months is considered balanced," the report noted.

There is a silver lining in this cloud as prices are expected to move back in line with long-term trends.

"A number of fundamental valuation measures, including the ratio of home prices to household incomes and home prices to rents, suggest average U.S. housing prices are moving back in line with long-term trends," Warren added.

By Steve Stecyk and edited by Megan Ainscow