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Yes, home prices can fall, and they do. U.S. home prices fell 3.2% in the second quarter of 2007 from the year-ago period, according to Standard & Poor’s Case-Shiller home price index. To put it in perspective, that’s the biggest decrease in the index’s 20-year history.
And it’s not just happening in Florida and Michigan. Prices fell in 3.5% in 20 metropolitan areas and 4.1% in 10 metro areas. In Detroit, they plummeted 11%.
Many real estate trends—speculation, job market growth— are indeed local, but it’s hard to deny that current problems in the mortgage market are national. Turmoil in the credit markets is putting lenders out of business and leading others to tighten their standards for loans.
It’s no surprise that houses are still selling slowly and demanding price cuts. Yesterday, the National Association of Realtors said total existing-home sales were down 0.2% in July. “Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months,” said NAR senior economist Lawrence Yun.
Fans of the “David Lereah Watch” blog will be delighted to know that there is now a “Lawrence Yun Watch” blog out there.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.