When will home prices stop falling?
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Reed Construction Data projects that home starts and sales will drop marginally more until mid-2009 and then begin recovering but far more slowly than usual. The housing market will be operating at a depressed level at least through 2010. Stopping the slide in starts and sales only requires that falling home prices end in enough local housing markets even as the national price index continues to fall.
The FHFA index has fallen far less than the Case-Shiller index because it includes the smaller housing markets where the home price decline is much less or never occurred at all. The FHFA reported that home prices rose in eighteen states in the last year. The twenty cities with the largest price declines were all in California, Nevada or Florida. Over the last year, home prices rose 3.2% in Texas but fell 20.8% in California, including 40% declines in some cities in the central valley south of Sacramento.
Housing is a local market. It will begin to recover market by market, beginning in the Plains and Northeastern states which largely avoided the 2004-06 explosion in home prices fueled by the suspension of the usual mortgage underwriting standards. These regions have far less surplus housing inventory. In the 3rd quarter the Northeast had a homeowner vacancy rate of 2.1% compared to a 2.8% national rate and over 3.0% in the Southeast, Southwest and industrial Midwest.
Ending the national home price slide will also be delayed by the first ever sustained decline in the cost of home construction. The price deflator for new one-family homes under construction peaked in March 2007 and has since dropped nearly 8%. Land prices have declined even more steeply. The bloated 2006 peak home prices in California, Nevada and Florida may not be regained for five years or more.
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Member Comments
Charles,
The fundamental issues that you are speaking about are niche markets now, Unfortunately overbuilding was driven by greed from novice investors, who in turn got fantasy financing from the Wamus driven by greed, who in turn were unwritten by Fannie and Fredie a quasi government group whose big wigs wanted bonuses etc etc etc and etc.
Now we will face other fundamentals: 1st money is going to safe havens and banks are who lent on home loans are not that. 2nd Construction financing is behind that. Third inventory financing and payroll financing in the production sector …
We have been hearing about the fundamentals of the economy, and the housing market recovery. Let’s talk about the basic two… Consumer Confidence and Ability. We all know the consumer’s confidence to make any type of large, long term purchase is at an all time low. Even if there were confidence and desire, there is no sense of urgency. Without that feeling of urgency, most purchasers will not pull the trigger. Ability is the most critical of all. With the restructuring of so many of the lending programs (a good thing) to require even more equity or down payment of the …
A fundamental issue is being ignored when discussing any future housing market recovery. That is the impact of going from a highly deflationary marketplace where we are now to the other extreme of high inflation. When the effect of government borrowing comes home to roost the costs of imports will greatly increase because the actions of our government to save the economy will destroy the value of the dollar. In turn this will increase the cost of imported manufactured goods and raise the hard costs of construction before the economy recovers. These economic facts will further delay any significant recovery in …
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