The respected S&P/Case-Shiller Home Price Index reported this morning that home prices in the 2nd quarter dropped 3.2 percent from the same period a year ago. It brought the index to its lowest level since reporting began in 1987. This followed yesterday's report by the National Association of Realtors that almost 4.6 million homes are on the market, a rise of more than 5 percent from the prior month. Condominiums are a particular disaster, with a year's worth of unsold units nationwide; single family homes stand at more than nine months of inventory compared with a normally balanced six months. Also this morning, the consumer confidence index took its biggest hit in two years. The solid U.S. economy suddenly appears as if it is taking some hits from a few more sides.
It is hard to see to where a turnaround in housing begins. One independent economist quoted in the Wall Street Journal today said that, "There are going to be no happy endings here [in the housing market]."
In the Case/Shiller survey, which gathers data from 20 metro areas, only four had year-over-year gains in selling prices: Seattle (7.9%), Charlotte (6.8%), and Atlanta and Dallas (both 1.6%). That reflects what real estate agents have been telling us in the southeast, that sales may be slow but prices are generally holding fast. However, it is reasonable to assume that, as inventory builds in the southeast because northerners can't sell their own homes and move south, we will start to see prices erode as well.
Eventually, of course, there will be happy endings, at least for some. The market will eventually stabilize, as it always does, and people's memories will turn short again, as they always do. I recall back in the early ‘90s, during the last housing disaster, all the experts advised it was foolish to ever again treat housing as an investment. That savvy advice lasted about as long as the next upturn, and many people made impressive money over a half-dozen years or so. But, of course, the folks late to the party, like Miami and Las Vegas condo owners who borrowed at cheap interest rates in anticipation of a quick flip of their investments, are now stuck with a lot of near worthless concrete.
Looking back, it is hard to fathom that merely a year ago, home prices were rising at more than 7 percent annually. Looking ahead, it is hard to see anything like that on the horizon. For those contemplating a relocation that would include the sale of one home and purchase of another, this is a time of extreme caution...especially if a mortgage is involved.
