Unrelenting Decline in US Home Prices

By Andrew Kliman.

The latest Case-Shiller home price figures, which came out this morning, indicate that home prices in the US fell by an average of 2.2% in March. Home prices have now fallen at just about this rate (between 1.9% and 2.2%) for seven months in a row; the pace of decline is not slowing down (see Figure 1).

Figure 1. Monthly Percentage Change in Case-Shiller 20-City Home Price Index Since 2006 (Seasonally Adjusted)

In recent weeks, there has been a lot of talk about a “moderation of the contraction”; see my post earlier this month here.  But there is no moderation of the contraction, much less an upturn in the US housing sector-the sector which has been, and remains, the key to the current crisis.

Home prices are now 32.2% below the peak reached in July 2006 (see Figure 2).

Figure 2. Case-Shiller 20-City Home Price Index Since 2000
In many of the 20 metropolitan areas covered in the index, especially in the Southwest, home prices have now fallen by more than 40% from peak levels:  Phoenix, Los Angeles, San Diego, San Francisco, Las Vegas, Miami, Tampa, and Detroit.  In Phoenix and Las Vegas, they have fallen by more than half.

Nine months ago, at the end of August, 2008, I wrote an analysis of the economic crisis (“A Crisis for the Centre of the System“).  At that point, as I noted then, the Case-Shiller index was down “only” 18.4%, and forecasters were typically saying (Meredith Whitney being a notable exception) that the total decline from the peak would reach 20% to 25%. In other words, they believed that the home-price slump had already come close to bottoming out. They were seriously wrong.

The unrelenting decline in home prices is an extremely serious matter because of the huge losses of home equity wealth involved, and because of the ever-deeper losses on mortgage loans, mortgage-backed securities, and so forth that are being taken by financial institutions.  It is very difficult to believe that the economy can turn around if home prices are still declining.

One Comment on “Unrelenting Decline in US Home Prices”

  1. 1Anne said at 2:24 pm on May 29th, 2009:Nor is there any prospect of home prices ceasing to fall, let alone rising, any time soon. The latest figures show that the number of home purchases is up, but so many more homes came on the market recently due to increased foreclosures, that increased sales are not expected to drive up prices. The latest wave of foreclosures is against prime mortgages, not just sub-primes, as more and more people lose their jobs and can’t pay.

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