Tuesday, December 30, 2008

Latest Case-Schiller Data Points to Record Price Declines...

This is the power of deflation… the largest credit bubble in the history of mankind was created and it will require much more time to unwind than most people were thinking. I contend that despite record inventory levels, there is a glut of homeowners who would like to sell, but have yet to list. Thus the pent-up pressure is still on the sell side, not on the buy side. As these price declines get worse, more and more people will be upside down on their mortgage making refinancing more difficult if not impossible. Those sellers made a huge mistake in waiting, a mistake that many have made and will continue to make in the future.

The psychology of price declines is treacherous if you own assets that are going down. The average person does not initially believe it will be a large decline, they think it will be temporary and short lived like the ones they experienced prior. Then the declines pick up steam and they get defensive, “well, I’m just going to wait.” Prices go down some more and they may realize they should have sold awhile ago, but then they think, “how much lower can prices go?” And that is a fallacy that traps many people into riding even deeper into the declines, for prices can ALWAYS GO LOWER.

I liken this to the person who buys the $2 stock that has fallen 90% in value. They think that since it fell so much already that it can’t fall any further! Yet, that person can lose HALF their money if the stock falls by only another $1.

So, what then happens is at some point that homeowner or stock owners gives up. Of course the time they give up is the time the market turns. That’s the way it works for MOST people. It doesn’t have to work that way for YOU. Oh, if your plan is to “hold” onto your real estate thinking it’ll come around eventually, you better be prepared to hold it for a VERY long time all the while paying increasing taxes and maintenance costs…

Home prices post record 18% drop

The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row.

By Les Christie, CNNMoney.com staff writer
Last Updated: December 30, 2008: 10:08 AM ET

NEW YORK (CNNMoney.com) -- Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday.
The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

"The bear market continues; home prices are back to their March 2004 levels," says David Blitzer, Chairman of the Index Committee at Standard & Poor's.

Sunbelt cities suffered the most, but most of the country is watching home values fall. In Phoenix prices have plunged 32.7% since October 2007, Las Vegas home values are down 31.7% year-over-year, while San Francisco prices fell 31%. Miami, Los Angeles and San Diego recorded year-over-year declines of 29%, 27.9% and 26.7%, respectively.

"As of October 2008, the 20-City Composite is down 23.4%," said Blitzer. "In October, we also saw three new markets enter the 'double-digit' club."

Atlanta, Seattle and Portland reported annual rates of decline of 10.5%, 10.2% and 10.1%, respectively.

"While not yet experiencing as severe a contraction as in the Sunbelt, it seems the Pacific Northwest and Mid-Atlantic South is not immune to the overall demise in the housing market," Blitzer added.

Deteriorating environment
Many of the factors affecting home prices turned strongly negative this fall, according to Blitzer.
"October was really the first month to feel the full brunt of the credit crunch," he said. "Up until the Lehman Brothers [bankruptcy filing on September 15], everyone felt relatively optimistic."
Plus, in many of the free-falling cities distressed properties, such as foreclosed homes and short sales, make up a majority of real estate sales. These houses tend to sell at a steep discount to the rest of the market, and when they account for a large proportion of all sales, they can exaggerate the depth of price declines.

Of course, foreclosures continue to be a big problem as well. In October alone, nearly 85,000 people lost their homes to foreclosures, adding vacant inventory to an already overburdened market.

Home sellers should not expect prices to improve any time soon, according to Pat Newport, a real estate analyst for IHS Global Insight.

"I expect it's going to get quite a bit worse over the next couple of months," he said. "Existing home sales reports have really been bad."

And although interest rates are currently extremely low, that's doing more to help people refinancing existing mortgages than it is to help new home buyers.

"Buyers still have to have a 20% down payment," said Newport, "and, in this environment, it can be hard to meet that criteria."