Case-Shiller: The Continuing Real Estate Debacle

The Case-Shiller numbers were released Tuesday by Standard and Poors. The Case-Shiller is an index comprised of 20 metropolitan markets that gauges the health of the U.S. real estate market. The statistics are published on the last Tuesday of every month, with information ending 2 months prior to that date. Hence, this latest report contains figures through July 2008. Home prices are negative by 17% over the past year in the aggregate. Property markets have not experienced such carnage since The Great Depression. 

The glamour markets spiked during the boom and have been thoroughly brutalized throughout this bust. The debacle is a consequence of real estate values pricing out all consumers, sans the upper middle class and wealthy. The technology boom and Web 2.0 manufactured Silicon Valley paper millionaires at a fantastic rate. Hence, a $1 million California home is simply "keeping up with the Jones.'" Florida remains a fantasy world for the wealthy, and a perverse economic deathtrap for the downtrodden. Regional glamour markets, where a $1 million homestead is par for the course, will inevitably collapse upon themselves.

Sun Coast Glamour Markets:

Las Vegas:         -30%

Phoenix:            -30%

Miami:               -28%

Las Angeles:     -26%

San Francisco:   -25%

San Diego:         -25%

Middle America has not been the victim of such spectacular carnage in the absolute sense. Yet, the trials of Rust Belt real estate may be even more dire considering the fact that the industrial north had been largely unable to participate in the foregone boom. Cleveland and Detroit property values have returned nothing over the past decade; victimized by the decaying automotive industry. These two markets represent the worst performers over the history of this index. Chicago and Minneapolis are middle-of-the-pack U.S. markets overall, emerging from the Rust Belt rubble.

Rust Belt:

Cleveland:         -8%

Chicago:            -10%

Minneapolis:    -13%

Detroit:             -17%

The Pacific Northwest / Rockies, Texas, and the South have held up relatively well. I would rationalize that these areas did not participate in the irrational exuberance gripping the Florida, Arizona, and Nevada markets - and therefore demonstrate stability, at the expense of exceptional long-term returns. Seattle and Portland remain viable alternatives to California, the Texas economy is under girded by this era's energy boom, and Southern real estate continues to offer exceptional value.

What Real Estate Bust?

Dallas:             -2%

Charlotte:       -2%

Denver:           -5%

Portland:        -7%

Atlanta:          -8%

Seattle:           -8%

The I-95 corridor is on the brink. I am forecasting that today's credit debacle will emerge as the primary catalyst for further price deterioration within the Northeast. The Tri-State area and Boston are heavily reliant upon the financial sector as engines of economic growth. New York City and Boston, MA represent two of the top performing property markets over this past decade, and the fallout has yet to be felt.

Comments

[Smarty_Pants:]

Economic sanity would dictate that the fall in housing prices will not stop until a point is reached where the average Joe can actually afford to buy a house and support the mortgage payments while staying within his budget.

Long way to go yet in some places.

2008 Oct 02 11:41 AM