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Home prices dropped a record 15.8% in May
Old 07-29-2008, 12:08 PM   #1
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Home prices dropped a record 15.8% in May

Home prices drop record 16% - Jul. 29, 2008

NEW YORK (CNNMoney.com) -- May home prices dropped a record 15.8% from a year ago, according to the S&P/Case-Shiller Home Price Index of 20 cities. It was the 22nd consecutive month of decline recorded by the index. Prices fell 0.9% from April to May.
Each of the 20 metro areas covered by the index posted annual declines; nine posted record lows and 10 cities recorded double-digit drops.
The Case-Shiller 10-city Index posted a year over year decline of 16.9%, and a 1% month over month dip. Both the 10-City Composite Index and the 20-City Composite Index are reporting record annual declines.
"Since August 2006, there has not been one month where we have seen overall price increases, as measured by the two Composites," said David Blitzer, Chairman of the Index Committee at Standard & Poor's.
Losing streak
Case-Shiller has been tracking the 20-city index for 19 years, while the 10-city index is 21 years old. The current streak of price declines has been unprecedented in both its length and depth. The last extended decline began in in April 1990, when the 10-city index sank for 10 consecutive months. But that total loss was just 6.5%.
Since the 10-city index peaked in July 2006, it has plunged 19.8%. The 20-city is down 18.4% from the peak.
The 20-city index's Sun Belt cities, which recorded the biggest price gains during the boom, have led the charge down. Las Vegas prices have plummeted 28.4% during the past 12 months; Miami prices fell 28.3%; and Phoenix homes lost 26.5% of their value.
Midwest metro areas, which have endured tough economic times for years, are also feeling the pain. Detroit prices are off 17.4% for the 12 months, and Cleveland is down 8%.
Northeast cities like Boston, down 6.2% for the 12 months, and New York, off 7.9%, have been less volatile than the Sun Belt.
The smallest year-over-year declines were recorded by Charlotte, N.C. (down 0.2%), Dallas (down 3.1%), and Denver (down 4.8%).
The soaring numbers of foreclosures are helping to push down prices. Banks tend to slash prices when selling repossessed homes, since they lose money every month a house sits vacant. They must pay property taxes, maintenance expenses and utility costs while getting nothing back in return.
Those sales, in turn, tend to bring down prices in the rest of a given neighborhood, creating a vicious cycle.
Foreclosures accounted for a large - and growing - share of all existing homes sold in some markets. In California, for example, 40% of the existing homes sold during the three months ended June 30 were foreclosures, according to DataQuick, a real estate information provider. That's up from just 5.4% during the same period in 2007.
Rays of light
Optimistic observers might point out that price declines appear to be slowing. The 10-city index's 1% month to month dip in May was less than April's, when it registered a 1.5% decline, while the 20-city index fell just 0.9% in May after dropping 1.3% in April.
Can this be a sign of better times to come?
"Recent home buyers just entering the markets may be seeing price stabilization," said Lawrence Yun, the usually optimistic chief economist for the National Association of Realtors.
He pointed out that in places like Las Vegas and Phoenix, drastically lower prices have led to an uptick in sales volume, a sign that conditions may stabilize.
But Patrick Newport, an economist with Global Insight, an economic forecasting firm, thinks there are more hard times ahead. He points out that seasonal variations may account for what appears to be a slowdown in the pace of the May decline.
"You can't go by monthly numbers," he said. "What I look at is the Census Bureau's inventory of vacant homes on the market. That hasn't budged much, although it dropped to 2.8% [of total homes for sale] in the second quarter from 2.9%."
Historically, vacant homes have made up about 1.7% of housing inventory.
"What's worrying me is that foreclosures are adding to inventory, and the inventory numbers tell you what to expect for the next couple of years," says Newport. "They're saying home prices will drop."
And Yun expresses concern over mortgage rates, which have been on the rise. Higher rates can cancel out more affordable prices by increasing monthly mortgage payments.
The new housing rescue bill that just cleared Congress over the weekend may help, however. "The tax credit for first-time home buyers will offset the slight rise in mortgage rates," he said.
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Old 07-29-2008, 12:57 PM   #2
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Just to let you know, they didn't drop 15.8% in May. They dropped maybe 1% in May, it is a year-over-year calculation.

I still expect another 10-15% to go in 12-18 months before we hit bottom. But, what do I know?
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Old 07-29-2008, 01:14 PM   #3
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Let's not forget that Case-Shiller is a crap index. It's over concentrated in bubble areas and doesn't include your house unless you live in it's 20 metro areas.
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Old 07-29-2008, 02:06 PM   #4
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And this affected me? How?

Not in the sense that it makes a difference in my investments.

Assume I hold 100% cash, I own my own home, and I have no plans to sell in the immediate future (e.g. 20 years).

- Ron
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Old 07-29-2008, 02:20 PM   #5
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As others have already said:

(1) This is a cumulative 12-month drop, not a one month drop. These types of things are always measured year-over-year to eliminate seasonal factors.

(2) This index is overly weighted in bubble markets. Consider other markets which never had a bubble:

Austin home sales may be gaining strength - Austin Business Journal:
Austin is not seeing the drastic price drops that many other markets around the country have experienced. The average price for a single-family home stood at $263,151 in May, up 5 percent from a year ago.
Some markets which didn't participate in the nose-bleed runups are doing all right. In fact, the areas where the economy is holding up the best are still seeing some *increases* in housing prices as housing demand from people moving into stronger economies to find work keeps prices at least flat if not still rising a bit.

We're not seeing a housing crisis here or anything close to plummeting housing prices. (At least not yet.)
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Old 07-29-2008, 02:26 PM   #6
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Also, the rate of decline seems to be slowing. I love when the experts say "there is no bottom to the housing market"--that means we are getting close.
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Old 07-29-2008, 03:16 PM   #7
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don't know about that, the foreclosures for the ARM resets haven't really started
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Old 07-29-2008, 06:29 PM   #8
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I haven't seen much drop in my neighbourhood....
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Old 07-29-2008, 07:05 PM   #9
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Seems to be slowing down here in Sacramento. Everything seems to be about fairly priced right now for the most part. Still a few unrealistic sellers and plenty of bank owned properties with dead yards that havent been lived in for a year or more.

Another year. Maybe a bit more.
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Old 07-29-2008, 10:00 PM   #10
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Quote:
Originally Posted by CitricAcid View Post
Just to let you know, they didn't drop 15.8% in May. They dropped maybe 1% in May, it is a year-over-year calculation.

I still expect another 10-15% to go in 12-18 months before we hit bottom. But, what do I know?
You may be right on the money, Citric. I hear from local RE brokers that from October through next February there will be a ton more foreclosures on their way, as a lot of ARMs are scheduled to reset to higher rates. I don't know if the recent legislation will help those homeowners, but the market is expected to be even more flooded with foreclosures and prices will continue to drop.

The thing is that in metropolitan areas and especially the suburbs that surround them, housing prices are still up by about 60% over 2000 prices. All in all, not a bad return.

FWIW, the commercial RE market has not taken much of a hit here in the LA area. Prices are holding, although there are many tenant vacancies.

Does anyone know much about commercial RE (specifically office buildings), by any chance? I have some questions...
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Old 07-30-2008, 02:42 AM   #11
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Along with individual home owners defaulting... some builders that are holding spec homes in the ground are defaulting on loans... Banks will likely wind up with some of those homes. A few larger builders are trying to cut rescue deals.
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Old 07-30-2008, 08:22 AM   #12
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And this affected me? How?

Not in the sense that it makes a difference in my investments.

Assume I hold 100% cash, I own my own home, and I have no plans to sell in the immediate future (e.g. 20 years).

- Ron

Might mean your property taxes will go down, and have few more dollars of disposable income.
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Old 07-30-2008, 10:07 AM   #13
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Might mean your property taxes will go down, and have few more dollars of disposable income.
Nope. Reassessments are done only every 20-25 years in my area.

Only way a house can be "revalued" is if it is sold, and you can argue with the county that it has reduced in value (you can't make an argument based upon "assumed reduction in value" - you have to make a sale to actually strike a new value).

BTW, I did get a reduction of a few $$$ due to the state starting to pay off with the introduction of slot casinos. I don't partake , so I am ahead of the game.

- Ron
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Old 07-30-2008, 10:31 AM   #14
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Might mean your property taxes will go down, and have few more dollars of disposable income.
Ding ding ding!

I applied for and received a $300 reduced property tax bill this year as a result of a comps reassessment.

Since we're not going to be selling for at least ten years, I hope the value of homes drops another 50% over the next five years and then enjoys a gentle recovery over the next five.
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Old 07-30-2008, 10:38 AM   #15
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The "unrealistic seller" syndrome in many of the bubble areas and other minor-declining areas (unlike the Midwest or, apparently, Texas) leads me to believe that prices right now are actually lower than what are reported. This will be reflected when the glut in housing for sale needs to finally be sold. Housing inventories, I feel, will continue to go up until some of the unrealistic sellers start coming down. How long will this take? Well, how desperate is the seller? If they own the house outright, may take two years... but if they are sitting on a 5/1 ARM... watch out below.
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Old 07-30-2008, 04:36 PM   #16
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The "unrealistic seller" syndrome in many of the bubble areas and other minor-declining areas (unlike the Midwest or, apparently, Texas) leads me to believe that prices right now are actually lower than what are reported. This will be reflected when the glut in housing for sale needs to finally be sold. Housing inventories, I feel, will continue to go up until some of the unrealistic sellers start coming down. How long will this take? Well, how desperate is the seller? If they own the house outright, may take two years... but if they are sitting on a 5/1 ARM... watch out below.
I agree with this. I don't think this thing is over yet.
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Old 07-30-2008, 05:56 PM   #17
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And this affected me? How?

Not in the sense that it makes a difference in my investments.

Assume I hold 100% cash, I own my own home, and I have no plans to sell in the immediate future (e.g. 20 years).

- Ron
And even if you do sell - if you buy a house of equal (depressed) value, what difference does it make? If you are going to downsize, or rent, then yes....

And this means bargains are out there for first time home buyers, or people moving up.


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Old 07-30-2008, 06:12 PM   #18
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The factor I seldom hear discussed is that of our depressed job situation. Fewer and fewer high paying blue collar jobs to name one area. Will there really be enough "qualified" buyers (under more conservative lending rules than those used during the bubble) to bid housing prices back up? Maybe yes in some areas and no in others......... ? I think it will be a long, long time before houses in depressed rust belt areas rise in price due to agressive bidding from hoards of qualified, eager buyers!
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Old 07-30-2008, 06:26 PM   #19
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Ding ding ding!

I applied for and received a $300 reduced property tax bill this year as a result of a comps reassessment.

Since we're not going to be selling for at least ten years, I hope the value of homes drops another 50% over the next five years and then enjoys a gentle recovery over the next five.
Waitaminnitwaitaminnitwaitaminnit.......so you convinced the assessor that your property was worth not quite $30,000 less than what you paid for it a few years back? So what is that, about a 10% drop on a $300,000 house or a 5% drop on a $600,000 McMansion in the Sacretomato area? Hawaii won't even let you appeal if the difference isn't more than 5%. Ten % drop in value over a couple of years!! The horror! Although it does pretty well match up with my 9% drop in the early nineties when everybody was crying the end of real estate again.

Dam Prop 13! Anyone who bought more than a couple of years ago will see their assessed values rise by 2% even tho CFB is getting a break! It's not fair, even tho those people are probably paying a fraction of what your reduced value is even tho their homes are worth hundreds of thousands of dollars more. Yeah, Prop 13! Real estate is too much math.

You know that money supports our schools! At least buy 300 lotto tickets!!
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Old 07-30-2008, 07:59 PM   #20
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Yeah, we've got prop 8 or something like that. Prop 13 inhibits increases beyond nominal annual increases. Prop 8 lets you appeal for an appraisal and if the result is lower than whats on the books, you pay less.

You have to apply annually for it. Its a 3 minute phone call. I'm okay with that

I just found three recent comp sales in my neighborhood that sucked and used those as my 'argument'. I didnt tell them I've done a complete exterior remodel, put in a new kitchen and a new master bath. They're welcome to stop by and have a look if they like.
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