Record Declines in Home Prices Continue

Through January 2008, prices of existing single family homes posted record low annual declines.

“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate."

I believe that falling prices -- along with falling industry -- will ultimately be healthy, eventually returning real estate markets to more normalized sustainable levels somewhere off in the future.

Graphic courtesy of S&P/Case-Shiller Home Price Indices

Table courtesy of TFS Derivatives

Source:
Record Declines in Home Prices Continued in 2008
S&P/Case-Shiller Home Price Indices
March 25, 2008

Tradition Financial Services, Inc. / TFS Derivatives Corp.
March 25, 2008

Comments

[Tony Soprano:]

Did Barry really say this?

“I believe that falling prices -- along with falling industry -- will ultimately be healthy, eventually returning real estate markets to more normalized sustainable levels somewhere off in the future.”

“Will ultimately be healthy” sounds like a bear turning a corner. Well, maybe its just some old fashion hedging.

2008 Mar 26 06:53 AM

[flyoverman:]

An alternative headline could be "Housing Prices Retract Some After Years of Booming". Where I'm at there is no decline, but there wasn't the same boom either.

2008 Mar 26 09:11 AM

[Rhett:]

"Somewhere off in the future" sounds like a LONG time. Right, Barry?

2008 Mar 26 09:54 AM

[cynic69:]

I wonder if some folks are thinking it might be smarter to live in an apartment in the city than buy a house in the suburbs. Paying $4 for gas to fill the tahoe can be pretty intimidating.

2008 Mar 26 09:57 AM

[Steven R. S...:]

Falling Prices will continue until they get down to a level where 70%+ of the Households in the local Zip Codes can afford them. Housing Affordability is the issue.

Liberal lending allowed people to buy houses they could not afford, and others to refinance to levels they could not afford.

I have been teaching students how to measure where the bottom of the market will be in their individual Zip Codes in our Real Estate Finance and Appraisal classes at CSUSB.

Take the Household Income for an area, 32% of that, dived by 12 and you get a Loan Payment they can afford.

Divide that by a loan constant on a 30-year fixed rate loan, say 0.0063, and you get the Loan Amount.

Add a 20% or 25% Down Payment and you find the level where there is Supportable Demand.

Compare that to where the Average Housing Prices is for that Zip Code and subrtact the Difference. Divide the Difference by the Average Housing Price and you get a Percentage, that amount that is left to be shed.

In my Region, the Inland Empire, we still have 25% to 40% left to be shed.

Then, once that price level is reached, all over supply needs to be absorbed. During this period, the market willl be Flat.

Then, in another 2-years or so, prices may start increasing again, assuming incomes have increased, jobs have increased, etc.

2008 Mar 26 11:15 AM

[Still Renting:]

sTEVEN,

I lost my home of 18 years to a divorce. I now rent and there is absolutely NO way I would rent. Zillo has my home (in Seattle subburb of Renton) priced at $525k. I pay $1,600 a month rent. When the fan went out in the heat pump for the air conditioning, I simply called the landlord.

I figure I may start looking for a house to buy in, say 2011 or 2012, but I am getting hooked on this renting thing. And did I mention that if I change jobs (I was a computer consultant for ~15 years) I can simply move.

'Course, being an empty nester makes it easy...

2008 Mar 26 11:32 AM

[Still Renting:]

No way I would rent = no way I would BUY!!! Sorry about the mistake above.

2008 Mar 26 11:33 AM

[Still Renting:]

Flyoverman said,

An alternative headline could be "Housing Prices Retract Some After Years of Booming". Where I'm at there is no decline, but there wasn't the same boom either.

Well Flyover, it's been booming since WWII, but I really would not want it to correct back to that.

OF COURSE it is a cycle. It is just not a typical one any more than the great depression was a typical recession. The runup was historic here. The crash will be too.

2008 Mar 26 11:44 AM

[maxbid:]

And why did you leave out any of the big cities in Texas, i.e.: Austin, Dallas, Houston, or San Antonio?

2008 Mar 26 12:19 PM

[mallarde:]

Why the panic over losing the gains of 2006 when housing was jumping 10%-plus per year for the previous five years? Is it such a disaster that housing has only increased by 250% since 2000 instead of 275%? (Gross approximations in CA.)

The real problem is that once the music stopped, the most recent buyers were left without a place to sit. So be it. They speculated and lost. They were not "homeowners" in the conventional sense. They were more like call options buyers. If the market went up, they could refinance and be real owners. If the market went down, they would walk away because their call option did not hit.

It is frustrating for those that sat on the sidelines waiting for the madness to end to hear politicians talk about bailing out poor "homeowners" that speculated. It will not matter in the end because no bailout program will be large enough to help those that can't afford the house they bought without cashing in on the anticipated -- but non-existent -- 10% jump in equity.

2008 Mar 26 02:51 PM