No Sign of Bottom in Existing US Home Sale Prices

by: Research Recap April 30, 2008    

Research Recap

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There was no sign of the US housing market hitting bottom in February as sales prices of existing single-family homes showed double digit year-over-year declines in 10 of the 20 markets included in the S&P/Case-Shiller Home Price Indices.

The 10-City Composite posted a new record low annual decline of 13.6%, and the 20-City Composite recorded an annual decline of 12.7%.

Prices in all 20 metropolitan statistical areas were down from the previous month and only Charlotte was up from a year earlier at +1.5%.

The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months. On top of that, the declines have remained steep with eight of the 20 MSAs and both composites reporting their single largest monthly decline in February.

Las Vegas and Miami were again the weakest markets with year-on-year declines of 22.8% and 21.7% respectively. San Francisco, Las Vegas and Los Angeles each were down more than 4% from the previous month.

More evidence that prices have further to fall can be found in a recent presentation by Desmond Lachman, Chief Economist of the American Enterprise Institute. In a panel discussion Monday, Lachman said further declines are indicated by futures prices based on the Case Shiller Indices and by the historically high level of unsold housing inventory. He also said he expects “a burst in the commercial property market.”

He noted that interest rate cuts have been offset by widening credit spreads and that the stimulus package has been negated by higher oil prices. Therefore:

Further interest rate cuts and a second stimulus package are required. Unorthodox measures are needed to stabilize the housing market.

Another AEI scholar, former Fed official Vincent Reinhart said at the same panel that the rescue of Bear Stearns (BSC) was “the worst policy decision in a generation,” Bloomberg reported.

“The panicked decision jumped over other possibilities” and may prove as damaging as Fed policy errors that caused the “great contraction” of the 1930s and the “great inflation” of the 1970s, he said.

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This article has 6 comments:

  •  
    Apr 30 10:22 AM
    And yet, the idiot builders in my city keep knocking down good Craftsman style homes and putting up McMansions....

    One such house, only one street away from me was listed as $500,000 for a 2 bedroom, 1 bath. Idiot builder bought it, put on a second story, and he wants a sucker to buy it for 1.2 million. Good luck. It's been vacant for 2 years now...
    Reply | Link to Comment
  •  
    Apr 30 10:25 AM
    It would help to have some specifics on WHY he thinks the Bear bailout is bad. What did he expect to happen to the markets and the economy if it wasn't done?

    As for mortgages, I suspect many markets which aren't overpriced are now beginning to suffer because mortgages are being effectively being denied to first-time and low-income borrowers by lenders instituting high-down-payment minimums (including mortgage insurance minimums on condo's). The devil is in the details, and "temporary" measures lenders put in place because of "declining" prices are threatening to push the prices even lower as potential buyers give up applying for mortgages with impossible conditions...
    Reply | Link to Comment
  •  
    Apr 30 10:54 AM
    "potential buyers give up applying for mortgages with impossible conditions.."

    Not impossible, sensible....

    If you can't afford to pay, then you shouldn't get the loan.

    Issuing mortgages with "un-impossible&qu... conditions is what got us in this mess.
    Reply | Link to Comment
  •  
    Apr 30 12:13 PM
    According to George Bush, the reason why real estate went up is that there wasn't enough supply.

    So, prices coming down now must mean there is now too much supply.

    Brilliant!

    We need more thinking like this:

    MCCAIN, MCCAIN, MCCAIN!!!!!
    Reply | Link to Comment
  •  
    Apr 30 01:12 PM
    Why do we continue to look for ways to "stabilise" the housing market. Perhaps we should treat it as we do any other market, in other words let it find its point of stability. History has not treated our attempts to manipulate markets very kindly. Here's a link to a post I put on my blog several months ago on this topic-blog.metro-real-estate....
    Reply | Link to Comment
  •  
    May 01 02:41 AM
    Maybe we need to stabilize the market by hastening its correction downward to the long term steady price point.

    I occasionally hear this talk about people not being able to get loans. These are the people that shouldn't have been getting loans in the first place. When the prices finish correcting, more of them will qualify for the lower principle loan.
    Reply | Link to Comment
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