U.S. Home Prices Have Taken a Cliff Dive Without Signs of Recovery

U.S. home prices fell 0.6 percent in January of 2007, after dropping 0.7 percent in December 2006, according to new data from the S&P/Case-Shiller Home Price Indexes. Prices fell in 17 of 20 measured cities in January; prices were flat in Chicago and Seattle, and rose 0.4 percent in Charlotte, North Carolina.

On an annual basis, prices are now down in the 11 of the 20 markets tracked by S&P/Case-Shiller, with the worst performance in Detroit (-6.9 percent) and Boston (-5.6 percent). Seattle enjoys the best performance, with prices up 11.1 percent over the past twelve months.

“The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “The 10-City and 20-city Composites are both showing negative annual returns, a striking difference from the 15.1 percent and 14.7 percent returns they reported this time last year. The dismal growth in the 10-City composite is now at rates not seen since January 1994.”

Dire … dismal …. clearly, Shiller thinks the real estate market is getting ugly.

A look at the chart of annual price gains is shocking. Since early 2004, price gains have fallen off the cliff, and there is no sign that the trend is decelerating or changing directions.

The U.S. Commerce Department reported Monday that sales of single-family homes fell 3.9 percent in February, following a 15.8 percent plunge in January. The sales rate in February was the slowest pace in nearly seven years. The backlog of unsold homes now tops 540,000. At current rates, it would take 8.1 months to eliminate that backlog, the longest period for that measurement in 16 years according to the San Jose Mercury News.

With the sub-prime market imploding and the Fed showing no signs of lowering rates, many expect prices to fall further as we enter the traditional spring selling season.

Comments

[achilleis:]

I work in the mortgage business, and we have value problems everyday. My clients homes drops an average of 10% since last year. I'm in orange county.

2007 Mar 29 11:39 AM

[MikeH:]

I can't believe that you are ignorant enough to assemble this collection of moderate adjustments and print them in such a shrill context. You would think you were fleeing a tsunami.

In the first place, real estate is a local phenomenon and nationwide metrics that are the mean of widely disparate data points are absolutely meaningless. Your very premise is statistically meaningless -- besides being obviously cherry picked. Housing is down 6% in Detroit. Oh, what shall we do? Three straight years of growth of 20-30%, then a single-digit adjustment. Sub-prime mortgages comprise 1% of the mortgage market. Average sales inventory is 6 months, now it's 8 after three years of boom that just ended a couple months ago. Lets run in circles screaming.

2007 Mar 30 01:48 PM

[Mike O'Connor:]

Mr. Hogan, the subprime market is about 7-8% of the mortgage market, not 1% as you assert. This is according to a Federal Reserve governor(ess), as reported by Bloomberg in the Gene Sperling article entitled "Subprime Market -- Isolated or a Tipping Point?".

2007 Apr 01 05:11 AM

[andrewn922:]

It's Econ 101, capitalism at work. It's just the classic bust and boom. It's probably a hard landing. Text book case, sectors move in different directions. As a whole, market will do just fine. Real Estate had enjoyed its 10 years run though.

2007 Mar 30 02:51 PM