Whose Home Prices Numbers do you Believe?

Posted by: Chris Palmeri on September 30, 2008

The battle of the home price databases continues. The Standard & Poor’s/Case-Shiller index out this morning shows a record 16.3% price drop in July from the year-ago period. That was the largest slide since the index was created in 2000. The index tracks resale, single family home prices in twenty large cities. An older index that follows the ten largest cities plunged 17.5%, the biggest decline in its 21-year history.

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Las Vegas was hit the hardest with prices down nearly 30%, followed by Phoenix and Miami, which were down 29% and 28% respectively. To put these declines in perspective, during the last big housing bust from 1990 to 1992, the steepest year-over-year decline was 6.3%. Prices peaked in October 1989, according to the Case-Shiller numbers. They hit bottom in February of 1994 but it took until January of 1998 for prices to reach their previous high again, a cycle of nearly nine years.

There was some good news in the Case-Shiller data. While all twenty cities showed year-over-year declines, six managed to post monthly increases from June to July. Those cities were Atlanta, Boston, Dallas, Denver, Detroit and Minneapolis. Denver had the largest month-over-month increase at 1.3%. “There are signs of a slow down in the rate of decline, but no evidence of a bottom,” David Blitzer, head of S&P’s index unit said.

The National Association of Realtors, whose data is reported by its members and follows the entire country, not just the largest cities, reported a 7% median home price decline in July to $212,000. The association is already out with its August numbers, which show a steeper 9.5% fall to a $203,000 median price nationally.

One reason why prices have declined so sharply is many of the homes being sold are distressed situations—short sales and foreclosures. “They’re bank-owned properties with dead lawns and green swimming pools,” says Rob Jensen, a RE/MAX agent in Las Vegas. “They account for 75% of the sales right now. That pushes pricing down. It’s just a snowball effect.”

Jensen figures prices in Las Vegas are back to 2002 levels. But there is a silver lining. “So many people were priced out for so long,” he says. “The last four years you couldn’t find a home for under $300,000. Now, you can find a great home with a pool for $250,000.”

Reader Comments

KAR

September 30, 2008 5:28 PM

Depending on where you are these indexes actually understate the decline. Looking at advertised prices, my own area peaked at $439k in 2006. Now many homes are being advertised at about $105k with a few in the mid $70s.

Rob

September 30, 2008 6:16 PM

Be thankful that you aren't trying to sell in southwest Connecticut.

SSamuel

September 30, 2008 8:09 PM

The US should keep foreclosures of homes as low as possible. Banks should be very understanding with their troubled customers. Let them keep their homes, let them pay just interests or let them even pay just part of the interest. They keep the houses in shape when they are living in them, although banks are not making money in the short term. If banks force people to leave their homes, there are going to be a huge amount of unsold houses with worsening condition and downward prices.

JJ

September 30, 2008 8:35 PM

The government should let the foreclosures take place. You cannot deny market forces. The fact of the matter is, the prices have bubbled up so high, they need to come down to reality. Let everyone learn their lessons. A lot of people who could not afford to buy did not buy and kept on renting. Why should we let people who never could afford a house to begin with keep their house? When I couldn't keep my car loan, the Government isn't coming to rescue me and let me keep my car for free. Why should we pay for people who made bad economic decisions?

ss

September 30, 2008 8:41 PM

Re: Rob and CT Real Estate.

Is a drop of 50% unreasonable?

Appraisr

September 30, 2008 10:27 PM

We appraised a large newer colonial on a golf course in an exurb of Washington, DC recently. It had sold in 2005 for $550,000 and eventually went into foreclosure. It was in average condition and sold in 2008 for $268,000, almost a 50% drop in value.

Anyone buying a house now will obviously appreciate the new pricing levels, but where the bottom is in this market is anyone's guess. We are on unfamiliar ground.

Jim

October 8, 2008 10:17 AM

Being that I'm someone who is patient and will only buy a house that is affordable to me, the whole "downward price" thing doesn't bother me much. Actually, it's what I've been counting on occurring for the past five years. I think it's a bit selfish to push all of this garbage forward, saving home buyers that probably don't deserve to be saved in many cases. Rewarding bad choices will only bring more bad choices down the road. Maybe now is the time to reward the hard working, honest, patient people in the country? Just a thought.

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About

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.

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