Posted on 05/27/2008 8:41:31 AM PDT by Reeses
U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday, a somber indication that the housing slump continues to deepen.
Standard & Poor's/Case-Shiller said its national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.
Prices nationwide are at levels not seen since the third quarter of 2004, according to Maureen Maitland, a S&P vice president. However, the index is still up 60 percent versus 2000.
Two narrower indices set record declines in March versus the previous year. The 20-city index tumbled 14.4 percent, the lowest since that index was started in 2001. The 10-city index plunged 15.3 percent, a record in its 20-year history.
"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," said David Blitzer, chairman of S&P's index committee.
Nineteen of the 20 metro areas reported annual declines, with 15 of them posting record lows. Six metro areas lost more than 20 percent.
Las Vegas had the worst performance in March, falling 25.9 percent from a year earlier, followed by Miami and Phoenix. Only Charlotte, N.C., stayed above water, gaining less than 1 percent over the previous year.
Last week, the Office of Federal Housing Enterprise Oversight said home prices fell 3.1 percent in the first quarter, the largest drop in its 17-year history and only the second quarter of price declines recorded.
The OFHEO index is narrower in scope and is calculated using mortgages of $417,000 or less that are bought or backed by Fannie Mae or Freddie Mac. That excludes properties bought with some of the riskier types of home loans.
Just wait. The same people lamenting falling home prices will contradict themselves by claiming “inflation” next.
More like 7.5% and considering the house is heavily leveraged, it represents a great return on investment. Anyone getting 7.5% appreciation on their house is living there for free.
Thanks a bunch. I just found out I've gone from a comfortable amount of equity at the first of the year to upside down.
Exactly; and then after we hear the doom'n'gloomers on these threads whine about runaway inflation with falling home values, we'll then hear about soaring property taxes along with these plummeting appraised home values.
What's your math on that? 6% for 8 years is 1.06^8 = 1.593, which is about a 60% gain. If you are highly leveraged and paying 6% on the money you borrowed then 6% appreciation isn't a gain.
Someone needs to tell Texas and New Mexico. I've been closely watching home prices in west Texas and in New Mexico for months and I have not seen a drop in prices. The overpriced house next door to mine in Albuquerque sold in less than 30 days.
Now the non-housing part of the economy is experiencing significant inflation and lenders are functioning like real lenders, so people have less to spend on housing. Demand for housing has also been suppressed by the financial death of the flippers. The supply side of the equation has been stoked because after 2005 builders, being builders, continued to build and the forclosure rate has increased.
Under these circumstances, why is anyone surprised that prices have returned to 2004 levels. Why should anyone be surprised if prices decline to the levels of 2002 or even 2001. Standing atop the 1995-1999 inflation, the inflation in housing prices in the first five years of this century was not based on any permanent change in market fundamentals. It was based on increased demand which was stimulated by unsustainably easy credit and a speculative frenzy (at least here in San Diego).
The response of the potential sellers in the market has been retreat and, in some cases, denial. Very few homes are being listed for resale. In my entire zipcode only 15 or so homes were listed during the first quarter of this year. Some were priced in a way that may come close to recognizing reality. Others were priced as if we were still living in 2005. Very few have sold.
This market has a bottom. Very clearly we have not reached it.
Lenders hanging onto real estate are setting themselves up for a painful snap. It might be a good time to short the stocks of these lenders. Personally I wouldn’t buy from a lender or at a foreclosure auction because the sale is as-is and they don’t have to disclose anything. You might get 20% off the price compared to similar houses but after you repair all the damage done by vandals you save only 10%. You could get get 10% off dealing with a motivated conventional seller and get a nice house without the legal strings.
Some markets are reporting more than a year of inventory for sale at current sales rates but if they included the number of houses pulled from the market due to market conditions the real number is much higher. Some people can afford to wait out the storm but divorce, job loss, illness, and other reasons are going to force many people to sell at the worst time.
No, it is 6.0% Do the math. 60/8=7.5. That doesn’t account for ammortization. That is just a straight average ration. Start with $100,000. Compound that 6.0% annually and you get $159,000.
6.0% is correct.
By the time all is said and done, the numbers will work out to 4-5% because house prices over the long term never goes up faster than inflation. I’m willing to concede that inflatio may have been 5% since 2000, so that is a reasonable bottom for housing.
The problem is, after a bubble (and espacially a MASSIVE bubble like this last one), housing always dips below the mean in an over-reaction, before it comes back up to the mean. So at its worst, houing my dip down to a 3-4% annual rate of appreciation since 2000 before it stabilizes at 4-5%.
IMO, yours is one of the wisest and best stated posts on any of these housing threads. I think everything you said is accurate and true.
It is not as if RE is a bad investment over the long-term. Those who bought years ago and didn’t extract any equity from their homes will still be in good shape when the bottom comes in.
Your post was great. Everyone should read it twice.
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