Shiller Worries Underwater Borrowers Will Stop Paying

Even though home values continued to firm up in December, the man who created the Standard & Poor's/Case-Shiller index is worried that "underwater borrowers" will eventually stop making payments, sending delinquency rates rising again. In a conference call discussing housing prices, Robert Shiller, chief economist for MacroMarkets LLC, noted that 80% of underwater homeowners are continuing to make payments "but I'm worried about what will happen if they stop paying." David Blitzer, chairman of S&P's index committee, cautioned that one of great unknowns for housing is whether "the idea you did whatever it takes" to make the mortgage payment is fading. Still, the new indices released Tuesday show that home values rose for the seventh straight month in December. The S&P/Case 20-city home price index rose 0.3% during the month compared to November. Compared to December 2008, the index fell 3.1%. Five of 20 cities in the index showed declines from November to December. The index is now up more than 3% from its bottom in May, but still 30% below its May 2006 peak. Los Angeles and Phoenix posted the largest price increases. The worst performer was Chicago with a 0.6% decline.