I have been talking for months about Real Estate and how home prices will be getting worse before they get better. However, the main stream media and the housing associations have been promoting the exact opposite. However, today, new data just Zillow, the real-estate information company, show house prices are falling at their fastest rate since the Lehman collapse.
“Average home prices are down 8% from a year ago, 3% over the quarter, and are falling at about 1% every month and the percentage of homeowners in negative-equity positions — with a
home worth less than its mortgage — has rocketed to 28%, a new crisis high.“
Zillow NOW predicts prices will fall about 8% this year and says it no longer expects the market to bottom before 2012. This sounds eerily familar to what we have been reporting on the radio show since last year, nonetheless, it is nice to have Zillow join the reality party. If we can just get the National Association of Realtors to quit flat out telling lies – we will be in better shape.
“Demand is a lot more anemic than we had previously thought.” This was absolutely elightening sentence considering that 1 in 5 Americans are in foreclosure or behind on their payments, can’t move because of lack of mobility, can’t get access to credit or simply just don’t have the appetite to get burned again.
I have been stating ever since the beginning that bailouts for homeowners was a foolish was of money and that is exactly what those tax breaks for home buyers have turned out to be. The government spent an estimated $22 billion between 2008 and 2010 on tax breaks to prop up the housing market. All it achieved was a brief suckers’ rally that ended last summer – and now people are shockingly surprised at the outcome. When you have 3 million more homes than you have people to live in them, extremely low household formation and high unemployment – what did you expect? Another rocking housing boom? Seriously.
All one needs to do is take a look at the chart. This is a composite of the National Association of Realtors Home Price Index and Core Logic’s Single Family Home Prices. Home prices got subtanitally above the long term trend line in 2006-2008 and, as with any correction, we most work off that overpricing to a large degree to bring speculative real estate investors back into the marketplace. With the long term median home price around 169,000 we have a long way to go yet to get that pricing back in line with historical norms.
There is a bigger problem with this than just people stuck in the their homes. The lack of mobility means that people can’t sell their homes to go find jobs in other parts of the country which means unemployment will remain high for sometime. Second, the banks are sitting on a LOT of inventory on the balance sheets that they can not, and do not want to, liquidate at lower price levels which would cause a massive balance sheet hole. The government owns a lot of these mortgages through Fannie Mae and Freddie Mac that they are hoping to be able to offload onto investors at some point in the future. However, with 16.3 million families upside down on their mortgages and climbing – the end game looks fairly dangerous.
The next financial crisis may actually wind up being right where it started – in housing.