Wednesday, 1 October 2008

US Home Prices Continue to Fall

The Case-Shiller Home Price Index released yesterday showed new records in year over year declines. for the month of August. The 10 city composite index showed a -17.5% year over year decline while the 20 city composite showed a -16.3% fall. From their peaks the 10 city composite is off -21.1% whilst the 20 city composite is off -19.5% from the peak. Of the 20 cities surveyed, 14 recorded declines in July. David Blitzer of S&P had this to say:

“There are signs of a slow down in the rate of decline across the metro areas, but no evidence of a bottom” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Little positive news can be found when cities like Las Vegas and Phoenix report annual declines as large as -29.9% and -29.3%, respectively, and all 20 cities are still in negative territory on a year-over-year basis. The Sunbelt continues to be the story, with the seven cities that basically represent that area reporting annual declines roughly between 20 and 30%. While some cities did show some marginal improvement over last month’s data, there is still very little evidence of any particular region experiencing an absolute turnaround.”

So the bottom callers will have to wait for another month, however I think they actually see a bottom until well into next year.


aidee said...

Wondering about the interplay of people exiting the stock market and heading back into housing as an investment? Would it be possible that the long Australian housing bubble continues or has the credit crunch removed monies from the system and therefore cannot be reinvested? Curious to know where Australia is heading with its bubble...

The Fundamental Analyst said...

I don't pretend to have an answer to your question but this is my feeling on the subject.

On a relative basis the Australian housing industry is extremely over-valued. The average home price is something like 7-8 times income, in the US it is back to about 4 times.

Australians have become accustomed to borrowing huge amounts to buy houses they can barely afford.

Whilst the economy in Australia is in relatively better shape than most of the rest of the world. I expect unemployment to climb next year and head towards 6% by then end of 2009 early 2010. On top of that with credit markets the way they are, I doubt whether banks will be able to pass on RBA rate cuts over the next 12 months.

I wrote about this a while back, if the US is any guide rate cuts by central banks will have little effect on mortgage rates.

I can't see house prices moving in any direction but down over the next 2 years or at best flatline in Australia.