Tuesday, November 27, 2007

Home Prices Take A Steep Drop

Third-quarter home prices dropped 1.7% from prior quarter, largest drop in 21-year history.

The housing bubble has officially burst and its not pretty. With numbers like this the foreclosure rate can only climb as people realize their home is worth less than they currently owe.
Home prices have fallen steadily since July 2006, but plunged even more steeply in the third quarter, according to a report released Tuesday by S&P Case/Shiller.

According to the Case/Shiller index, which covers 20 local markets and a national average, third-quarter home prices dropped 1.7 percent from the second quarter.

The housing market could possibly get a lot worse, according to Yale economist and index co-founder, Robert Shiller. He was asked at a press conference following the release of the latest index data whether housing price increases, which had far outstripped income gains, could revert back to more normal ratios.

Shiller said, "You're talking about [home-price] declines of 50 percent, in real terms. That's not out of the question."
Did you just read that? A 50% decline is not out of the question. Can you really relate all of this to the subprime debacle? I think that is a good part of it but it is also that wages have been stagnant for years while home prices have climbed out of the reach of most Americans. First time home buyers were faced with mortgage payments totally more than 50% of gross income. How can any family sustain those types of payments for long? This is the result of greed and stupidity in the Bush era.

How can consumers not reign in spending when every one of their assets is in decline? Unless we are dealing with a totally new psychology when it comes to spending then a recession is nearly guaranteed.

The housing cycle is very important to the business cycle, according to Shiller. Most economic recessions are preceded by housing declines and residential construction is an important leading indicator for the economy. The weakness in the housing market is causing him to wonder whether the nation could slip into recession.
It seems the time has come to pay the piper and the bill will be staggering.

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