Higher-End Homes Face the Price Pressure (This and the Point of Sale in SC is hurting us all)

Though the cheapest houses on the market may not get much cheaper, more-expensive homes still have further to fall, which will likely slow the broader housing recovery.

The Standard & Poor's/Case-Shiller home-price indexes for October are due on Tuesday morning. Economists estimate the index tracking prices in 20 major cities was down 7.7% from a year ago.

That would mark the smallest year-over-year decline since November 2007, but would also leave prices slightly lower than in September, ending a four-month string of month-to-month improvements. That might cause some anxiety about the housing recovery.

Despite recent signs of a bottom, many observers expect home prices to fall an additional 10% before the bust ends.

A pipeline clogged with future foreclosures is the most-cited reason for such forecasts. Another has to do with the shifting mix of home sales.

So far this year, between a third and half of all sales in any given month have been foreclosures and other "distressed" properties, which have mostly hit lower-priced homes, typically the most available to subprime borrowers. Distressed properties have kept home prices falling, even as the government tax credit has boosted sales.

The worst of the subprime-mortgage defaults has likely passed, most analysts agree. That could explain why low-end homes are decreasing as a percentage of total foreclosures, while middle- and high-end homes are taking bigger shares, according to Zillow.com data.

That shift suggests price declines will prove more pronounced in middle and higher-end housing brackets, which haven't yet fallen as far as the broader market. In San Francisco, high-end prices are down just 25% from their peak, compared with 39% for the broader regional market, according to Case-Shiller data.

Monthly payments for adjustable-rate mortgages, which helped many buyers afford more-expensive homes, could rise next year, either due to payment resets or rising interest rates. That trend threatens more defaults on higher-priced properties, which would weigh on prices.

Further government aid could ease the sting, but may not be enough to offset market fundamentals—it couldn't stop prices from falling this year.

Printed in The Wall Street Journal, page C1