Home Prices at 2002 Levels

[Surlethe]

WSJ

U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.

For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.

Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.

David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.

Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.

The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.

Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.

For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.

Jesus, this was a huge-ass bubble. Even if the financial industry hadn't built a house of cards on house price inflation, a fall of this magnitude would still have dampened the economy.

[MKSheppard]

This also hurts taxes; e.g. Property taxes. I wonder how much money in taxation has been lost?

[J]

The latest numbers I'm seeing indicate a 30-35% year on year drop in tax receipts, so that's about $800 billion down from the previous year. I expect these numbers to worsen as the layoffs, foreclosures, and defaults continue.

[Darth Wong]

Jesus, this was a huge-ass bubble. Even if the financial industry hadn't built a house of cards on house price inflation, a fall of this magnitude would still have dampened the economy.

You can't really separate the two. House prices became so ludicrously inflated in the first place because of an economic fad which preached that it's a net gain to the economy to encourage massive borrowing in order to finance things like home buying. When that much money pours into a market, the value of products in that market will shoot up beyond all reason.

It still bugs me that certain people were touting the healthy economic growth numbers under Bush during his term and I was retorting that it was bullshit because it was borrowed pseudo-prosperity, and today those same people are now acting as if they held my opinion the whole time.

Of course, it's still not as ridiculous as the Dutch tulip bubble

[J]

Of course, it's still not as ridiculous as the Dutch tulip bubble

Yet...

[Sea Skimmer]

This also hurts taxes; e.g. Property taxes. I wonder how much money in taxation has been lost?

A fair bit, but people’s homes don’t get reassess for taxation every year; or commonly only once every four or ten years. In some places you only get reassessed when a home is actually sold. So in this respect, the full affects have not been seen, and heck some of the affects might never be seen because prices may start rising again before all the reassessments take place.

[The Duchess of Zeon]

Honestly I could easily see most of the growth since 1994 - 1995 being completely fictitious, at least much smaller levels of growth might well be in reality what the market is really valued for. I could imagine housing prices returning to 1999 levels fairly plausibly before the housing market bottoms out.

[J]

Honestly I could easily see most of the growth since 1994 - 1995 being completely fictitious, at least much smaller levels of growth might well be in reality what the market is really valued for.

That's because it is fictitious and based on innovative fraudlent lending & financing games.

I could imagine housing prices returning to 1999 levels fairly plausibly before the housing market bottoms out.

I think it will be worse than that, my guess is early 1990's levels if we're lucky based on the following - when we look at previous bubbles, the collapse almost always takes the price below where it was when the bubble started, this was the case with commodities last year and early this year, the tech sector following Y2k, and Japan's markets in the 90's. With housing we have the additional factors of lending standards being tightened while we're crashing plus the effects of unemployment feeding into it and causing yet more defaults & foreclosures which destroy the value of all homes around them.

Most analysts are calling for a 50-60% drop from the peak which would put the bottom price in at around 1999 levels, I believe there will be significant overshoot to the downside with a 70-80% drop from peak to bottom, putting us somewhere in the early 90's if we're lucky and manage to keep interest rates under control. If Bernanke loses control of the longer term Treasuries it will send mortgage rates well into the double digits which severely limits the size of mortgage loans which customers can take out, which puts further downward pressure on home prices. In that case a 90% drop from the peak isn't out of the question, placing us around the early to mid 1980's.