“Sudden and Dramatic Drop in U.S. Home Prices” – Clear Capital

A Clear Capital press release that I recently came across confirms our grim expectations on the housing front:

“Clear Capital’s latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”

This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.

Clear Capital HDI Index and S&P/Case-Shiller 20-City Composite HPI
Clear Capital HDI Index and S&P/Case-Shiller 20-City Composite HPI

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July 2010 – New One Family Home Sales at All Time Low; ZERO Units Over 750K Sold!!

Two days ago the data on new home sales was published for July. What caught my (and probably everybody else’s) eye was the all time low in new one family home sales, at 276,000:

And how’s the high end market doing? See Breakfast with Dave:

The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it!

This is really as bad as it gets. Mish sums it up succinctly:

Inventory is up, sales are down, sentiment has soured, and tax credits have gone poof.

Prices will follow.

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July Home Sales Likely Worst Month in a Decade

The AP Writes July home sales likely plunged:

The housing market is taking a turn for the worse.

Tuesday’s report from the National Association of Realtors about sales of previously occupied homes is expected to show sales plunged in July. Economists are predicting as much as a 26 percent drop from a month earlier to a seasonally adjusted annual rate of 3.95 million. That would be the worst month for sales in more than a decade.

Many say the market is hurting because buyers and sellers are in a standoff over home prices. Sellers have unrealistic expectations about their home values and are listing properties on the high end.

Buyers are afraid home prices will start falling after being flat nationally for about a year and even rising in some parts of the country.

These are the inevitable workings of a slip back into recession, a double dip recession if you consider the phony reflation efforts of the past year to have been a break from the recession (which I would have my doubts about … but these are minor details in the grand scheme).

In short … The Great Depression 2.0:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

If it was our dear government’s objective to repeat the playbook from the Great Depression one by one, then they have indeed succeeded phenomenally.

It should be clear by now to the most adamant believers … there was, is, and will be no recovery anytime soon.

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Hope You Enjoyed the Housing Recovery … Because It’s History

Some considerations from Richard Suttmeier:

Since the recovery in house prices began last summer, homeowners and real-estate agents have embraced what many believe is a return to normalcy (forever rising prices).

In Wall Street-fueled markets like New York City, properties are once again getting multiple bids, and optimists are chattering about a quick return to old highs.  If the trend continues, friends, neighbors, and real-estate agents will no doubt soon start repeating the adage that helped inflate the housing bubble in the first place: Real-estate is always a great investment.

But the trend won’t continue, says Richard Suttmeier, strategist at ValuEngine.com.

The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market.  Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running.  Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.

In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.

For a good overview of the trends that concern Suttmeier, see fund manager Whitney Tilson’s latest presentation on the housing market.

New Wave of Foreclosures

From  Zillow:

Zillow recently released its first quarter Real Estate Market Reports for the nation and 135 metropolitan areas. The reports show that home values continued to decline nationwide in the first quarter, amid encouraging signs in California. However, growing negative equity and record foreclosures will likely delay a broader recovery.
The full national report, in its new, interactive format, is available at www.zillow.com/local-info or by emailing [email protected]. Additionally, in most areas data is available at the state, metro, county, city, ZIP and neighborhood level.
Topline National Results:

  • U.S. home values fell 3.8 percent year-over-year, and declined 1 percent quarter-over-quarter, marking the 13th consecutive quarter of year-over-year declines. Home values declined year-over-year in 106 of the 135 metropolitan statistical areas (MSAs) tracked by Zillow.
  • Home values in several large California markets have stabilized significantly, and show tentative signs of reaching a bottom.
  • Negative equity remains high with 23.3 percent of all single family homes with mortgages underwater, up from 21.4 percent in fourth quarter.
  • Foreclosures reached a new peak in March, with more than one out of every thousand homes (0.11 percent) being foreclosed.

The $8,000 first time homebuyer tax credit program has now run out, and so has the $6,500 repeat homebuyer program. Everyone knew that once those run out home prices would resume their natural and required path of price deflation, and foreclosures and underwater homeowners would be back in the news.

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1 in 4 Homeowners Under Water

WSJ reports nearly 1 in 4 homeowners are under water:

The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

The argument of oversupply is valid. But then, why would prices hit bottom in 2011, is it not rather likely that it will take many more years, if not decades to work through the overhang, coupled with continuously rising unemployment, government debt, and taxation, private deleveraging, increased savings, and declining consumption demand?

Keep in mind that things look even worse for borrowers in some of the bubble states:

Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

These, and more, are all reasons Why There Is More Pain to Come

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