Home Prices in 20 U.S. Cities Fell by a Record 19%

By Shobhana Chandra

March 31 (Bloomberg) -- Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose.

The S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001.

A glut of unsold properties may keep prices low, shrinking household wealth and damping spending. Still, sales of new and previously owned homes rose in February, indicating the housing slump, now in its fourth year, may ease as policy efforts to unclog credit and aid borrowers begin to take hold.

“At this point it doesn’t look great for the near term,” Robert Shiller, chief economist at MacroMarkets LLC and a co- creator of the home price index, said today in a Bloomberg Radio interview. Still, he said, prices “can’t keep declining at this rate forever.”

The home price index was projected to decline 18.6 percent from a year earlier, according to the median forecast of 29 economists in a Bloomberg News survey, after an originally reported drop of 18.5 percent in December. Estimates ranged from declines of 17.2 percent to 19 percent.

From a month earlier, home prices fell 2.8 percent in January, after a 2.6 percent drop in December, the report showed. The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month.

Universal Decline

All 20 cities in the index showed a year-over-year price decrease in January, led by a 35 percent drop in Phoenix and 32.5 percent drop in Las Vegas.

All of the 20 areas covered also showed declining home prices from the prior month.

“There are very few bright spots that one can see in the data,” David Blitzer, chairman of the index committee at S&P, said in a statement. “Most of the nation appears to remain on a downward path.”

Consumer confidence this month probably held near a record low as Americans fretted about paying their mortgages and keeping their jobs, economists forecast the Conference Board’s sentiment index will show today at 10 a.m.

Foreclosures surged 29.9 percent in February from a year earlier after rising 17.8 percent in January, according to RealtyTrac Inc. An estimated one in every 440 homes is in some stage of foreclosure.

Starts, Sales

Still, recent reports showed builders broke ground on 22 percent more homes in February than the prior month -- when starts plunged to a record low -- and that sales of new and previously owned houses increased, signaling the industry’s decline may be closer to reaching a bottom.

Lower prices and borrowing costs are attracting some buyers. The National Association of Realtors’ affordability index increased to a record in February. Mortgage rates for 30- year fixed loans fell to a record low in the week ended March 20, according to the Mortgage Bankers Association.

KB Home, a Los Angeles-based homebuilder that caters to first-time buyers, last week reported a narrower loss in the quarter ended Feb. 28, and said net new-home orders rose 26 percent from a year earlier, the first gain since the fourth quarter of 2005.

Consumer Spending

Also, while job losses are hurting Americans’ confidence, retail sales fell less than forecast in February and consumer spending had a second straight monthly gain. Economists predict the recession may ease in the second half of this year after the economy shrank 6.3 percent last quarter, the most since 1982.

Federal Reserve officials last week voiced confidence the economy will show signs of recovery by year end, responding to unprecedented monetary stimulus and the Obama administration’s $787 billion fiscal package.

“Resumption of growth should not be too far off,” Minneapolis Fed President Gary Stern said in a speech on March 26. He added, “Once under way, the pace of expansion is likely to be subdued for some time.”

Shiller, also a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

http://www.bloomberg.com/apps/news?pid=2...efer=home#

Remember that $7500 first tim home buyer credit Congress did last year? Basically an Interest Free Loan from the govt. It was set then to run from last summer through this coming summer for first time home buyers.

then they just started a new program that only works for people who buy in 2009 only, in which you get $8000 and its basically a Welfare Check, you do not have to Pay it back unlike the other program.

So in effect, they punished the people who bought in 2008 under this program, who also bought with higher home cost and higher Interest rates and are still making them pay back the 7500, while people buying now with Cheaper home prices, low Interest rates are getting an additional $8k they do not have to pay back.

and then of course, there are all the home buyers who bought before all this mess, and bought inflated prices and are upside down in them.

(03-31-2009 09:29 AM)GGniner Wrote:  then they just started a new program that only works for people who buy in 2009 only, in which you get $8000 and its basically a Welfare Check, you do not have to Pay it back unlike the other program.

So in effect, they punished the people who bought in 2008 under this program, who also bought with higher home cost and higher Interest rates and are still making them pay back the 7500, while people buying now with Cheaper home prices, low Interest rates are getting an additional $8k they do not have to pay back.

and then of course, there are all the home buyers who bought before all this mess, and bought inflated prices and are upside down in them.

My understanding is the $8000 is for first-time buyers as well. So yes, nearly everyone else continues to get screwed. On the bright side, we have a contract on our house, to first time home buyers.

As it is, I like real estate as an investment. If inflation kicks up w/ all the newly printed money, RE should serve as a hedge.

next year and into 2011 Real Estate should do well again, I think.

right now the shady and weaker Builders are going under, the strong and rich larger countries are gobbling up their investments.

DR Horton for example is positioned well, while builders like Portrait Homes are going under, pulling out of neighborhoods, not honoring warranties, etc.

(03-31-2009 11:25 AM)DrTorch Wrote:  

(03-31-2009 09:29 AM)GGniner Wrote:  then they just started a new program that only works for people who buy in 2009 only, in which you get $8000 and its basically a Welfare Check, you do not have to Pay it back unlike the other program.

So in effect, they punished the people who bought in 2008 under this program, who also bought with higher home cost and higher Interest rates and are still making them pay back the 7500, while people buying now with Cheaper home prices, low Interest rates are getting an additional $8k they do not have to pay back.

and then of course, there are all the home buyers who bought before all this mess, and bought inflated prices and are upside down in them.

My understanding is the $8000 is for first-time buyers as well. So yes, nearly everyone else continues to get screwed. On the bright side, we have a contract on our house, to first time home buyers.

As it is, I like real estate as an investment. If inflation kicks up w/ all the newly printed money, RE should serve as a hedge.

yes, both programs are for first time homebuyers.

what I don't get, and would love to know their logic. Is why they wouldn't just take the existing program they started last year and change the rules on it. Bump up to $8k and not have to pay back. As it stands those First time buyers from last year have to pay back the money eventually, while their peers who are buying now with lower interest rates and home prices get to keep $8k.

there are other stipulations with these bills too, if you make a certain amount you don't qualify for all of it, which is a more of an issue in higher cost of living areas(north, Cali..)

I knew it! It is all ObamaMessiah's fault! If a republican was in power, the housing price decrease would NEVER have happened.

(03-31-2009 12:48 PM)RobertN Wrote:  I knew it! It is all ObamaMessiah's fault! If a republican was in power, the housing price decrease would NEVER have happened.

No. If republicans were truly in power banks would not have been encouraged to give bogus loans just so some guy who earns nothing can have a house worth $1,000,000 only to default on it 5 years laters. The democrats are the ones who wanted cheap garbage loans, not the republicans.

Roberta has no comprehension of the facts. Roberta does not care.

I know a little about a lot, but I only know a lot about a little - and I know a lot about housing markets. I am in a real-estate related field, and mark my words the housing market will not recover until all the subprime loans (and the associated foreclosures) are out of the market/system. The last of the subprime loans will reset in 2013. Hence the real estate market will not recover until 2013.

Remember as well, that people who are currently upside down in their home value, but can make their homepayments, are itching to move as well - but since they can make their payments, their home is not on the market.

When the real estate market flips, the market will be FLOODED with these additional homes for sale, again depressing, or at least maintaining, the depressed market. Our internal intelligence really pushes a full recovery of the real estate market (meaning 2-5% yearly gains on average from the lowest value, not recovery of '05-'06 prices) well past 2015.

(04-01-2009 09:44 AM)Lord Stanley Wrote:  I know a little about a lot, but I only know a lot about a little - and I know a lot about housing markets. I am in a real-estate related field, and mark my words the housing market will not recover until all the subprime loans (and the associated foreclosures) are out of the market/system. The last of the subprime loans will reset in 2013. Hence the real estate market will not recover until 2013.

Remember as well, that people who are currently upside down in their home value, but can make their homepayments, are itching to move as well - but since they can make their payments, their home is not on the market.

When the real estate market flips, the market will be FLOODED with these additional homes for sale, again depressing, or at least maintaining, the depressed market. Our internal intelligence really pushes a full recovery of the real estate market (meaning 2-5% yearly gains on average from the lowest value, not recovery of '05-'06 prices) well past 2015.

Is it this sort of expected surplus that is providing this administration the excuse to push all levers toward inflation?

Seriously, everything I see is gearing for inflation, although this person captures it better than I could
http://www.qando.net/?p=1847

While the current Keynesian interventionists think inflationary spending might stave off a depression from overproduction, I think the current policies will generate 'Stagflation' like in the '70s, except it will be accompanied by fairly high unemployment.

My prediction remains 20 to 50 million unemployed, accompanied by 20% to 50% inflation, starting some time in the 2011-2013 time frame and continuing until sanity is restored, best guess 2020 or so.

We'll hit the unemployment number when the rest of the world starts to recover and businesses start bailing out for more business-friendly climates, rather than put up with the Obama tax and regulate approach; I'm guessing that's closer to 2011. We'll hit the inflation number when the bills start coming due for the stimulus; I'm guessing that's closer to 2013. I think the rest of the world will recover before we will. Their economies have to do some growing to replace the US demand they're losing, but that will happen eventually.

We'll have serveral mini-recoveries, each sparked by housing. Each time, the next trenche of subprime loans will hit and knock us down again.

At some point, people will start to understand what happened, and eventually sensible policy will start to become politically appealing; that's my 2020 projection. That's starting to happen in Europe now, but it took them 50 years and I'm afraid in many cases they are too far gone. They've been looking at double-digit unemployment so long that they are used to it. We may be too far gone by 2020, and we may in fact be too far gone already.

Those are my predictions. Right or wrong, I at least have the guts to put them out there. I hope I'm wrong. I really do. I want the US to succeed. But I don't see how we can if Obama succeeds in implementing his programs. He may have enough in place already to guarantee our continued failure for at least a decade.

(04-01-2009 09:44 AM)Lord Stanley Wrote:  I know a little about a lot, but I only know a lot about a little - and I know a lot about housing markets. I am in a real-estate related field, and mark my words the housing market will not recover until all the subprime loans (and the associated foreclosures) are out of the market/system. The last of the subprime loans will reset in 2013. Hence the real estate market will not recover until 2013.

Remember as well, that people who are currently upside down in their home value, but can make their homepayments, are itching to move as well - but since they can make their payments, their home is not on the market.

When the real estate market flips, the market will be FLOODED with these additional homes for sale, again depressing, or at least maintaining, the depressed market. Our internal intelligence really pushes a full recovery of the real estate market (meaning 2-5% yearly gains on average from the lowest value, not recovery of '05-'06 prices) well past 2015.

what about Commercial Real Estate?

(04-01-2009 11:46 AM)Owl 69/70/75 Wrote:  My prediction remains 20 to 50 million unemployed, accompanied by 20% to 50% inflation, starting some time in the 2011-2013 time frame and continuing until sanity is restored, best guess 2020 or so.

20-50M unemployed is a rate of 7-16%. Not unreasonable. I'm thinking the lows won't be that good. Something along the lines of 11-16%.

I agree w/ the timing of inflation. I don't think it will be quite as high as you predict. More like 10-30%, with a wide variation among sectors (maybe that's always the case).

Anyway, you posted these numbers a while back, you obviously understood and put the pieces in place before I did.

(04-01-2009 12:13 PM)DrTorch Wrote:  

(04-01-2009 11:46 AM)Owl 69/70/75 Wrote:  My prediction remains 20 to 50 million unemployed, accompanied by 20% to 50% inflation, starting some time in the 2011-2013 time frame and continuing until sanity is restored, best guess 2020 or so.

20-50M unemployed is a rate of 7-16%. Not unreasonable. I'm thinking the lows won't be that good. Something along the lines of 11-16%.
I agree w/ the timing of inflation. I don't think it will be quite as high as you predict. More like 10-30%, with a wide variation among sectors (maybe that's always the case).
Anyway, you posted these numbers a while back, you obviously understood and put the pieces in place before I did.

These kinds of forecasts are never easy. You can do a perfectly reasonable job and still miss wildly. It's particularly hard to figure out exactly how the timing will work.

I do think I'm way closer to what will actually happen than Obama's 4.1% growth rate.

One thing, unemployment is based on the number of people actually in the workplace, and it appears that you used something pretty close to total population as the denominator for your statistics. I'm thinking in percentage terms of 15-25%. I've just been expressing it this way because I like the symmetry of the 20-50, 20-50. I actually think if my inflation number misses, it will be because actual comes out much higher. I think Argentine peso territory is in range once we start printing money to pay for the deficits.

(04-01-2009 02:26 PM)Owl 69/70/75 Wrote:  One thing, unemployment is based on the number of people actually in the workplace, and it appears that you used something pretty close to total population as the denominator for your statistics.

You're right, my error.

(04-01-2009 11:58 AM)GGniner Wrote:  what about Commercial Real Estate?

Right now, CRE is stronger than the residential market for many obvious reasons. Unemployment is still relatively low, and certain markets like Manhattan, Chicago etc will always have a large CRE demand. Clevelands and Charlottes, not so much.

I have a close friend in mid-level CRE here in Mpls. He basically rents out property to comercial entities like a Borders or a Bed Bath and Beyond. While certainly this is not 2005, and while he has problems with some locations, much of their properties do rent out - albeit at lower costs. Also, many tenants like a Borders are now coming back and asking for rent reductions - if 100 Borders receive a $10k reduction in rent per year, that is a $1MM savings. But also $1MM out of the CRE management pocket!

Two items of concern for CRE
** Higher unemployment (obvious)
** Restructuring of the white collar work environment to telecommuting (not so obvious, but certainly trending that way)

As a bizarre side to the above telecommuting point, I do believe there will be a great future market for large conference type properties that a company can rent out once a month for large meetings for telecommuting employees. Monday, Boeing programmers. Tuesday, corporate HR for Starbucks, Wednesday, Knights of Columbus, Thursday Social Security Administration data entry clerks etcs... Think of a corporate campus in daily use, but rarely by the the same company.....


Secondly - there is a very real shift in living and work-place demographics back towards city centers. I'd ditch the far suburban office park investment as soon as possible...... as soon as the suburban office parks need major remodeling, those lucky fluid employers will take the opportunity to re-invest in more stable CRE (city centers, first ring suburbs etc).

3M isn't going to move 10miles from Woodbury to St. Paul MN, but a Tellabs might move 40miles from a Naperville to a Chicago IL.

I'll check in with my CRE buddy tonight as we drink it up after Rec League VBall, and let you know what he thinks straight from the horses mouth.....