Case Shiller: Housing Prices Down Again

Posted at 11:08 AM (CST) by & filed under

By Greg Hunter’s

Dear CIGAs,

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.