Wednesday, 26 March 2008

US Home Prices Continue to Tumble

From Standard & Poors:

Record Declines in Home Prices Continued in 2008 According to the S&P/Case-Shiller Home Price Indices

Data through January 2008, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show declines in the prices of existing single family homes across the United States continued into the new year, with 16 of the 20 reporting MSAs posting record low annual declines, of which 10 are in double-digits.

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Indices. Both of the composite indices are now reporting annual declines in excess of 10%. The 10-City Composite set yet another new record, with an annual decline of 11.4%. The 20-City Composite recorded an annual decline of 10.7%.

“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “Home prices continue to fall, decelerate and reach record lows across the nation.

No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.”

From their peak, the 10 City index is now off -13.4% whilst the 20 City index is off -12.5%. Whilst that represents the biggest declines in the indexes history, at best, in my humble opinion we are only half way through the full extent of home price declines.

Remember this index is two months old. The latest existing home sales numbers from February released yesterday showed home prices fell sharply, so we can expect to see steeper year over year price declines for at least another month.

What strikes me is that the rate of decline has not slowed. I would have expected the declines to continue but the rate of deterioration to slow. Eventually the year over year declines will slow and ultimately reverse as they did in 1991. However we still have a long way to go before we get to that point.