Yes, Housing Prices Have Much Farther to Fall. We're Talking Years...

By: Reggie Middleton | Fri, Sep 24, 2010
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Bloomberg reports US Home Prices Fall Again:

Sept. 22 (Bloomberg) -- U.S. home prices dropped 3.3 percent in July from a year earlier, the eighth consecutive decline, as foreclosed properties flooded the market.

Prices fell 0.5 percent from June, the Federal Housing Finance Agency in Washington said in a report today. Economists had projected prices to fall 0.2 percent from the previous month, based on the average of 15 estimates in a Bloomberg survey. The agency revised the previously reported May-to-June decline to 1.2 percent from 0.3 percent.

Foreclosures are boosting the supply of available properties and reducing prices, even as mortgage rates tumble to record lows. The time it would take to clear the market of homes for sale was 12.5 months in July, the highest in more than a decade of data, according to the National Association of Realtors. Banks seized a record 95,364 properties from delinquent borrowers in August, according to RealtyTrac Inc., an Irvine, California-based seller of housing data.

This should be of no surprise to anyone that reads the BoomBust or follows me regularly. I've been warning about the crash for over 5 years now, and those who feel we are nearing a bottom need to take out their spreadsheets and plug in some historical numbers.

Paying Subscribers are welcome to download the mortgage and credit template that was used in the original US (Don't) Stress (US) tests, otherwise known as SCAP. We have taken the liberty to update the template on a periodic basis for the government, since it appears they are not forcing the banks to do so Smiley SCAP Assumptions Updated_09082010 Web Version. This model shows a weakness in the Case Shiller method of following prices in that the CS doesn't include investment properties (usually the first to go into foreclosure), new construction, and REOs. As a matter of fact, Case Shiller actually looked slightly rosy as of late. The following graphs were generated from SCAP Assumptions Updated_09082010 Web Version.

US House Prices

Notice how the federal numbers show falls where CS doesn't. Signs on the street tell me the federal numbers are correct.

Bank Foreclosure Charge-Offs and Recoveries

As a matter of fact, things are so bad that I believe banks will have a perverse incentive to actually walk away. Now wouldn't that be something??? Next, we take a look into the home builder that makes more money doing distressed investing than it does building and selling homes.

 

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Reggie Middleton

Author: Reggie Middleton

Reggie Middleton
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Reggie Middleton

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