Case Shiller: Housing Prices Down Again
By Greg Hunter’s USAWatchdog.com
Housing prices are back to where they were in late 2002 according to the latest Case-Shiller report that tracks housing prices. February data shows 15 of 20 cities surveyed showed price declines. Overall, the prices sank 3.5% annually. Atlanta fared the worst with a 17.3% year over year fall in home prices. Phoenix was one of the few bright spots with a 3.3% increase. The report said, “Phoenix has posted two consecutive months of positive annual rates, with its latest being +3.3%, and five consecutive positive monthly returns.” But don’t start breaking out the party hats and champagne. The report also said, “Phoenix, which is one of the cities that fared the worst during the crisis, has now posted two consecutive months of positive annual returns and five consecutive positive monthly returns. However, it is still down 54.2% from its peak.” (Click here for the complete Case-Shiller press release.)
The average price decline from the 2006 peak in the Case-Shiller report is a stunning 35%. The February report charts a new low for the index. Please keep in mind, all this pain in the residential real estate market is going on despite near record low interest rates. The Federal Reserve is suppressing rates in hopes of getting some price inflation in housing. Instead, it is seeing inflation creeping up in food and energy costs while housing prices are verifiably heading down. The Fed should have just stayed out of the market and let it fall. Yes, it most definitely would have fallen more than it has, but we probably would have hit bottom by now. This would in turn have produced a real recovery, and people would be able to buy a cheaper house and pay a higher interest rate. Who has any confidence that the house you buy today won’t be worth less in a year?
I keep asking this question: What happens to home prices when interest rates rise back to more normal levels? If rates were just 7% for a 30-year mortgage, you would see at least another 20% decline. (Currently, rates for a 30-year mortgage are around 4 %.) Another boat anchor to housing prices is the millions of foreclosures coming down the pipeline in the next few years. There is no way we hit bottom in the foreseeable future. I don’t think we have seen the end of the real estate crash, and I don’t see prices going anywhere but down until 2016. Even then, it will be a very long climb back up for real home value appreciation. Bottom line: don’t be in a hurry to buy a house.
interest rates up = house payments per month go up = less people qualify = lower home prices in general and God forbid, even slower sales
What is really concerning me is the fact that the Government (HUD) is helping individuals with their housing loans. People are already in default and can’t make their payments due to job loss etc so the Govt re-organizes their loans and stretches them out to 30 years giving them a rate that is typically saved for very low risk mortgages. Yet these are people that already have shown they can’t afford the home they are living in. Then they bundle all these loan modifications up and sell them. Can you say here comes the sub-prime crash all over. No one is mentioning this, but they keep on making the same mistakes only this time with the governments blessing.
You have said for years that housing had not hit bottom, and you have been spot on correct. I wish there were more visionary journalists like you. Keep up the good work.
I feel that you may be wrong on this one. Certainly home prices can fall from here , even below the cost of replacement. However as you said the FED is artificially holding down interest rates , way below the actual rate of inflation if the old metrics were being used as per John Williams. If you are able to borrow, and that is a big if as the banks are absolutely not lending to anyone that actually needs the money, you are getting a loan that will make you money over time. I know that sounds crazy but when you figure in interest deductions and the near certainty of the FED losing control of the long end a 30 year mortgage at these rates is a steal. Also the dollar will devalue as the world comes to the conclusion that the man behind the curtain who is passing out brains,courage,and heart defibrillators is a carny clown. So borrowing (relatively) good money now and paying it back with lower value dollar chits later is also most likely in the cards. My son just picked up a condo for 40% under the last purchase price and had to put down 25% to get the mortgage ( he has a good job and still had to jump through some big hoops) his mortgage is lower than his former rent and the unit he bought is twice as large and nicer. Obviously you have to be a ( very) qualified buyer but buying now should not be written off without considering the bleak future of the dollar which is not being implied by these rates.
There are opportunities in the housing market for those who do their homework and are also prepared to buy for the long haul (at least 5 or more years depending on the area). Rises in interest rates do impact housing costs but in turn rising rents also incentivize people to buy and push home prices up. In some places, its now better to buy than rent. Likewise, you don’t need to pay cash. Interest rates are at a historic low and, depending on personal circumstances, it may be better to invest your money and reap a higher return versus your mortgage expense. If mortgage rates rise significantly having a reserve to payoff the home would clearly help too. Aggregating housing data may provide a big picture view, but the real story is at the individual level.
What is your son going to do when the Condo fees exceed the mortgage payments on the structure? It is happening many places as more defaults occur and inflation drives up materials and taxes.
Stay away from condos.
The dice have been cast and the market is sunk along with any future market. The well is dry. We are tapped out. The last 10 years the business community has been “forward” selling everything they can. The low interest loans of several years ago prodded everyone who could breathe to buy a house. The auto industry and their clunker bailout forward sold autos…. The futures market is now a joke. Once designed for farmers and others to borrow against future crop yields has turned into a paper bonanza. The CDO’s and derivatives are the same thing…. future profits sold today
Our nation is in hoc for years in to he future and there is nothing that can be done to correct the issue. What can be done? I don’t know but what I do know is that the people are tapped out and wage poor; the government continues to print more funny money; and the bailouts will continue because that is the only way to keep the country from crashing sooner rather than later.
bring back the OTTOMAN EMPIRE
General question, based on most of the comments it would seem that investing in realestate as rental proporties should be a good long term investment. Those that cannot afford to purchase will either stay in there home or rent. Considering this as a 10 year plan.
The two finalists in the search for the new Federal Reserve mascot are Humpty Dumpty and the “I’ve fallen and I can’t get up” woman.
this will be interesting.http://www.npr.org/2012/04/25/151335320/fed-chief-bernanke-to-discuss-sluggish-economy
bernanke talks today at 9 am. no doubt he will snow everybody agian.
Greg, the Fed will probably never increase interest rates again, simply can’t for a number of reasons of which your article gave one; trying to prop up the housing market. Secondly, low interest rates are needed to keep people buying securities (stock market) instead of in their bank accounts because low interest bank accounts pay very poorly and the market to touted as a better investment. Thirdly, the elite bankers want free money to lend at almost the same rate as usual making their profits per loan even higher. Thank about it, a bank would much rather pay .25% for Fed money and loan at 7% than pay 4% and loan at 8%, which is they are doing. Those are just three reasons among many others that Fed interest rates will not be raised in this decade or beyond. Of course, low Fed interest rate means the Fed has no way to curtail inflation, which is brought on by their fanatical headless printing (easing) policies. Conclusion, extremely low interest rates is dangerous, its like driving a car with poor brakes. Frankly, printing (the engine power) without interest rates (the brakes) is headed for an accident. Low interest by the Fed will make the Fed, it is not already, irrelevant in the helping the economy recover. The game is up for the Fed, don’t look to it for future help, were on our own.