Tuesday, June 24, 2008

Still dropping like a rock.

Four years of home gains have been wiped out
Prices fall in all 20 cities in Case-Shiller index in past year
By Rex Nutting, MarketWatch
Last update: 9:48 a.m. EDT June 24, 2008

WASHINGTON (MarketWatch) - Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Prices in the 20 cities are now down 17.8% from the peak two years ago. The biggest declines were seen in Las Vegas, Miami and Phoenix, with prices falling by 25% or more in the past year. Prices in 10 cities have fallen by more than 10%.

Prices were lower in April than they were a year earlier in all 20 cities tracked by the Case-Shiller index. Home prices in Charlotte, N.C., which was the last holdout, have now slipped 0.1% in the past year.

Prices were down 16.3% year-over-year in a smaller subset of 10 homes that have been tracked over a longer period.

Home prices surged in 2003 through 2006, climbing by a cumulative 52%. Since then, however, the housing and credit bubble has burst and home owners have given up half of their gains from earlier in the decade...

Now there are reports that we're moving to the next tier of defaults: alt-A, the next level up from subprime. These people actually have decent jobs (for the moment) and didn't lie on their applications or have their appraisals distorted too much - but the overall slowdown in the economy and rises in gas and food prices and usurious credit card fees and rates have messed up their budgets and they are now falling behind on their mortgages.

This means that more people will be trying to sell their homes, and more homes will end up in foreclosure, driving prices down further from what they have already fallen. The bottom of the housing market decline is not in sight, class. Alt-A resets peak in 2010 and 2011, meaning the earliest a recovery could begin might be 2012 or more likely, 2014. And that "recovery" - which may not occur at all if cities don't get serious about peak oil and start installing electric streetcars, trolleys and light rail to every neighborhood - will be "starting" at prices that will be perhaps 40% lower than the price at which the properties were purchased in the early 2000s. In order to actually turn a profit, in other words, however small, may take more than a decade from now. Until then people are most likely going to be stuck in houses they can't sell, and on which they owe far more than they're worth.

Neighborhoods without mass transit access may never recover, class. Values in those places could end up being 50-60% or worse less than they started. The buyers in those neighborhoods took a gamble that gasoline and diesel would always be affordable and people would always be willing to commute a long distance to work - and are losing that bet. It's a shame that most buyers didn't realize they were making that gamble when they bought their homes, but they were.

So hang on to your hats, class, because the ride is not over - not even close.

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