A Record Drop In Home Prices

Washington Post ^ | October 26, 2006 | Kirstin Downey

[GodGunsGuts]

The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades the number has been tracked, according to an industry report released yesterday.

Nationwide, the number of existing single-family homes sold fell 14.2 percent in September compared with September 2005, according to the report from the National Association of Realtors. The number of sales has fallen each month since March.

Prices fell everywhere in the country, with the Northeast and West most affected. Declines were more moderate in the South, which includes the Washington area....

[Mase]

The price of existing homes last month fell 2.2 percent, the largest monthly decline in the almost four decades

If I didn't know any better this might scare me.

• In September the Office of Federal Housing Enterprise Oversight (OFHEO) released its House Price Index. Even though there has been a slowdown in price appreciation, home prices were 10.06% higher in the second quarter of 2006 than they were in 2005.

• This slowdown is really just a reduction in the rate of increases compared to the past. For example, in the second quarter of 2005, the yearly home price appreciation was 14%.

• Over the past 12 months home price appreciation in Florida, Idaho and Arizona has been more than 20%. In Washington it was 17%, California 14% and New York 10%.

• Annual home price appreciation since 2000 has averaged about 9%. During that same time the Dow is up around 1%. In the 1990's home price appreciation averaged 2.9% while the Dow grew by almost 300%.

Housing has slowed so you become purveyor of doom and talk about fundamentals that don't exist. Over the past two months housing has slowed a great deal and you've cited that as vindication of your doomsaying. What you fail to recognize is that over that same two month period the Dow has increased by more than 6%. This tells me that investors are confident in our economy and that your fundamentals are fundamentally flawed.

[GodGunsGuts]

They are worried that our national debt and our triple deficits will cause the dollar's downtrend to resume (and accelerate):

[bruinbirdman]

"Gold is a lousy long term investment."

I have a tenth-ounce goldpiece. It has not earned a penny of interest in 20 years.

yitbos

[bruinbirdman]

"The US is the best place to invest in the entire world and foreign investors will continue to buy dollars so they can invest in America."

Why?

In a word "liquidity".

yitbos

[GodGunsGuts]

Goldstocks have beem appreciating faster and paying better dividends than most other investments for the last five years.

[Toddsterpatriot]

Wow, scary chart. Looks like the dollar has tanked since 1969. Are we doomed yet? Our economy must have been crushed by that drop. We must not be the biggest economy in the world anymore.

Any facts to go with your 120 to 80 factoid?

[Toddsterpatriot]

and paying better dividends

Now you're just making stuff up. What's the dividend yield on the Amex Gold Bugs?

[Mase]

We have been warned, and will continue to be warned until the rest of the world decides to take action to protect themselves from our deficits

The World Bank is warning us? ROFL!

We had trade and budget deficits throughout the 80's and 90's and your precious metal sucked wind.

Look at that. The Treasury is having so much trouble unloading our debt instruments that the yield has moved from 5.1% to 4.72% over the past six months. Yeah, they're really running from the dollar. LOL!

[Muleteam1]

>>Look for prices to increase in the south and southwest, especially states with no state income tax (texas, florida, nevada)<<

Possibly but Texas property taxes are causing this early retiree to move to a State with an income tax.

[logician2u]

Houses are still 5 times what they cost 40 years ago.

There can be no arguing the fact that, for most Americans in most states, owning a home is a good investment. You have to live somewhere, so why not take the money it would cost to rent (after taking the mortgage and property tax deduction) and buy a house? It's better than putting it into just about any other ordinary investment (even gold!) and you get to live rent-free.

Where the whole house of cards begins falling apart, unfortunately, is when you have new buyers -- a working couple in their 20s, for example -- signing up for a variable-rate, or worse, an interest-only, loan that they barely qualify for. Minimum down payment, no other assets but a car (which is financed, also) and a baby or two on the way or planned.

Should the husband or wife lose his or her job, they won't be able to make their house payments. After six months, the lender will foreclose. The house may have increased in value, but don't expect the poor couple to benefit from that after it's foreclosed on. And don't expect the bank to put any money into as much as cosmetic improvements once they get title, because banks don't do that; they just want to get it off their books.

So, a house that's worth maybe $300K will go on the market for $275K and sell for $270K, leaving the bank whole but the former owners wiped out. They won't be buying again soon.

Multiply this scenario by literally hundreds of thousands and you understand why it is that home prices can take a dip, even though, as you say, they are way above what they were 40 years ago.

It's just that only a small fraction of the population has been in their home long enough to realize that kind of gain.

[defenderSD]

In addition to liquidity, the US is the best place to invest because we have the best combination of political stability (DU notwithstanding) and relatively strong economic growth. As a foreign investor, you have three basic choices: 1) you can invest in the US & Canada (Canada's economy is closely integrated with the US economy and vice versa), which have very good political stability and fairly rapid economic growth, 2) you can invest in Europe or Japan, which have good political stability but slow economic growth, or 3) you can invest in developing countries such as China, India, Russia, Brazil, South Korea, and Mexico, which have strong economic growth but can throw you a nasty surprise from their less predictable political systems. For the typical foreign investor, the US and Canada are the best place to invest. More aggressive investors will make some limited investments in the developing countries.

The other big factor, closely related to liquidity, is that the US and Canada have the largest economies and the largest financial markets in the world, and that greatly reduces the risk of capital flight out of the US & Canada. The reason is simple: there's nowhere else for all the capital invested in the US to go because the foreign markets are much too small to handle it all and investors don't want to go there anyway for reasons mentioned above.

[pfony1]

You may want to check you math on that. Assume:

August:
3 McMansions sell for $1,000,000 => $3,000,000
70 Townhomes sell for $100,000 => $7,000,000
Therefore, 73 homes have an average selling price of $137,000

September:
2 McMansions sell 1,050,000 => $2,010,000
73 Townhomes sell for $105,000 = >7,665,000
Therefore, 75 homes have an average selling price of $129,000

With those results, which headline might you see in the MSM?

A. "Home values rise by 5%!"
B. "Homes sales increase by 2.7%!"
or
C. "Home prices in "Free-Fall"! -- DOWN 6.2% in one month!"

Hmmmm...


"Lies, d@#m lies and statistics"...

[Wuli]

(1) Rumors, (2)the Euro is now the cause of many economic problems across Europe and will lead to its case by case abandonment, probably beginning with Italy, followed by some of the new eastern EU states and when Britain goes back to the pound the Euro will be dead.

[Wayne07]

The housing stats separate out single family homes and condominiums. I'm not sure what you are trying to argue, that a lower number of sales inherently pushes an average one direction? That is clearly wrong.

[MeneMeneTekelUpharsin]

Bump for reference. Housing prices around here are dropping. So, I don't know exactly what's going on. Seems like a LOT of people have stakes on which way this thing goes. The first casualty of war (any type of war) is ... truth... isn't it?

[defenderSD]

Britain kept the pound and did not switch to the Euro when Britain joined the EU, and in fact at today's close of US trading, the British pound was worth $1.8918.

[Wuli]

You are right, I had forgotten that.

[lawdude]

PLEASE NOTE.

This is a drop in price, not necessarily value.

[nopardons]

Just because YOU are bleeding, doesn't mean that others are, nor that they shall do.

I know that you are fixated on gold and this supposed gigantic "housing bubble burst"; however, gold has slid, the housing market is REGIONAL, and the market and the economy are strong. There are NO significators that prove any of your positions or statements.

But then, you buy gold on margin, with credit cards. LOL

[nopardons]

LOL