Tuesday, August 28, 2007

Still Tanking

Yesterday we learned from the National Association of Realtors that the the supply of existing homes for sale is at a 16 year high. Inventories of homes for sale increased 5.1% from June to July to 4.59 million. This is about a 9.6 months supply at the current sales pace.

Today we learn from the Case-Schiller home price index that U.S. home prices fell 3.2% in the second quarter compared to a year earlier. This is the largest decline in the history of the 20 year Case-Schiller index. Last year at this time, home prices were increasing by 7.5%.

Here's the bad news:

"The pullback in the U.S. residential real estate market is showing no signs of slowing down," said Robert J. Shiller, chief economist at MacroMarkets LLC, which computes the price index for S&P.

The index shows prices falling in 15 of 20 major cities tracked.

Real estate, like politics, may be local, but sometimes you have nation-wide events that make the local suddenly national.

It's starting to look like that's happening now.

reality, what do you suppose these housing statistics mean?

Is the sky falling? Or are we simply living through the less pleasant side of an economic cycle?

The population of the US is not about to abandon its homes to live in tents.

Over time you will see that very few people will lose their homes, and of those who do, many will prove to have been speculators who might lose virtually nothing of significance.

I think you have images of sad-faced families standing outside in the rain after greedy bankers evict them from their cozy homes.

That's not likely to happen, no matter how hard the myth is pushed.
reality, the statistics indicate that a "buyer's market" is developing in real estate. Yet you and others are now pining for a return to the "seller's market". Why?

You seem to believe that either market condition can exist without stressing the economy a little.

Home ownership is at record levels. That says a lot.
RBE, Australia is suffering increasing stress in the home market. That includes:
1/ dropping property prices in key mortgage belts, giving lenders equity problems
2/ skyrocketing mortgage defaults
3/ over 30% of renters are reportedly in over their heads. This last one is even occurring in high income areas.
I would suggest that indicates some serious issues with fundamentals.
Interesting that you say even renters are having problems, cartledge. The large disparity between income (which has NOT kept pace with inflation over the last 6 years of the Bush administration) and rising housing costs (whether purchasing or renting) suggests there is a problem w/ fundamentals. Someone from Newsweek put it best the other day - "Your home value fell 3%? Good - now let it fall another 25% and get back to historical norm levels."

Of course, that process will be quite painful for the people who bough late in the bubble or for those who refiananced when values were much higher. But overall, it will be a good thing.
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