The fall in house prices appears to have resumed. Remember the collapse of the house-price bubble in 2006-7 was what largely triggered (triggered, but not the only cause) the Great Recession and the Great Non-Recovery. Late last year and earlier this year it looked as if the home-buyer credit and record low mortgage rates had stabilized house prices and ended the fall. It now appears the fall has resumed.
Now the tax credit’s gone. The ongoing and growing legal mess of foreclosure fraud is beginning to show it’s impact. As it becomes clearer that the banks and mortgage servicers have played fast and loose with legal requirements for mortgages, deeds to properties, especially foreclosed properties, become clouded and uncertain. And that scares off buyers. A lack of buyers, as supply-and-demand tells us means lower prices.
I look for more substantial declines in house prices nationwide, though I’m still praying my neighborhood gets spared further damage! One reason I’m so pessimistic is because historically over the last 50 years, median house prices have tended to be approximately 2.2 times the median household income. Even after the severe declines of the last few years, house prices are still largely well above that historical ratio. There’s no law saying the ratio must hold, but it’s a pretty long-term stable, fundamental relationship. So buckle up for another dip.
Reporting on the latest release from the S&P Case-Shiller House price index is Calculated Risk:
From S&P: Broad-based Declines in Home Prices in the 3rd Quarter of 2010
Data through September 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices … show that the U.S. National Home Price Index declined 2.0% in the third quarter of 2010, after having risen 4.7% in the second quarter. Nationally, home prices are 1.5% below their year-earlier levels. In September, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down; and only the two composites and five MSAs showed year-over-year gains. While housing prices are still above their spring 2009 lows, the end of the tax incentives and still active foreclosures appear to be weighing down the market.
The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).
The Composite 10 index is off 29.8% from the peak, and down 0.7% in September(SA)…….graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.
Prices increased (SA) in only 1 of the 20 Case-Shiller cities in September seasonally adjusted. Only Wash, D.C. saw a price increase (SA) in September, and that was very small.
Prices in Las Vegas are off 57.6% from the peak, and prices in Dallas only off 8.1% from the peak.
Prices are now falling – and falling just about everywhere. And it appears there are more price declines coming (based on inventory levels and anecdotal reports).