Latest Case-Shiller Numbers Show Steep Slide

Posted by: Chris Palmeri on November 25, 2008

The S&P/Case-Sheller index came out today and the news is not very good. In the national index, prices were down 16% from the third quarter 2007 to the same period of this year. Prices overall are back to 2004 levels, erasing four years of gains. From the peak in the second quarter of 2006, prices are down 21% nationally.

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The trends are different from one part of the country to another, however. The Sunbelt cities that had the largest gains have had the largest decline—Miami, Los Angeles, Phoenix, and Las Vegas. “A pattern we’ve seen consistently and if anything has become more pronounced,” notes David Blitzer, the index committee chairman at Standard & Poor’s. Blitzer noted that those cities were the ones where most of the subprime and creative mortgages were used. San Francisco is an extreme example of this. Higher priced homes have fallen less severely than low priced ones.

Detroit is one exception to the Sunbelt trend. It’s also the only city where housing prices are lower than where they were eight years ago.


The firm also introduced condo data for five cities—Los Angeles, New York, San Francisco, Chicago and Boston. Patterns are very similar to that of homes, substantial declines, more so on the West Coast. Homes have actually dropped more steeply in some markets such as San Francisco.

Wellesley College Professor Karl Case said “there’s no hiding from the bad news.” And it will likely get worse because the recent unemployment, credit crunch and panic on Wall Street has yet to hit the numbers. If there’s a glimmer of hope, he said, there are a bunch of cities including Boston, Chicago, New York, Atlanta and Seattle where prices are only down 10% or less. “Hardly a freefall in three years,” he said.

Individual cites are often a tale of two markets—one is the bank-owned home auction market, where prices have crashed dramatically. The other is markets where prices are even up. Case said the firm has considered dropping auction sales from the data. “If you look at the bottom end of the market, prices literally tripled,” he said. “If those are in there on the way up and you take them out on the way down, you get a biased view.”

A lot will depend on how the market responds to the various government-sponsored mortgage relief plans. “There’s a danger if you do that in too generous a way, people who have performing mortgages get angry, if they see their neighbor getting a break,” Case said. “It could be fairly easy to talk 3 million more into non-performing if they think they’ll get a hair cut. It’s a moral hazard.”

Reader Comments

blackbean

November 25, 2008 3:43 PM

'...There’s a danger if you do that in too generous a way, people who have performing mortgages get angry, if they see their neighbor getting a break...' No sh*t. People have to realize their homes are way overvalued. Still. Income levels do not support current prices. Better take the pain upfront. House prices should fall another 15% to 20%.

Sam

November 25, 2008 4:06 PM

I don't feel the housing price decline in NEW York City at all.
Yes, some condos priced $700,000 and up have declined by 8%-10% but they are still outrageously overpriced, but now only by a factor of 2.5 instead of 3.

An attached house in Bayside, Queens with two full-size 2br. apts and a semi-basement 1 br. - you know the kind, the cheap & quick American quality construction circa 1960s where you burp and a minute later you get a phone call from a neighbor upstairs asking you to turn it down - went for $900,000 two years ago. Today they ask $825,000-$850,000 for them - not much of a bargain. For that kind of money I can get a pretty nice little villa in Costa Rica. But in Queens, only a depressing-looking property with depressing Americans for neighbors who wash their cars by hand and watch your every move.

Imagine a winter in Queens for the privilege of which you'll pay $825,000?
Brrr.


But the cheaper ones, $275,000-$500,000 are no more than 3%-5% down since 2006.

Also in New York the developers and landlords keep buying up foreclosed properties to keep the prices from falling too much. Plus, the constant stream of arriving immigrantskeeps pressure on housing prices up.

Karl

November 25, 2008 4:31 PM

I hope that home prices keep going down so the YOUNG PEOPLE in America can someday buy a home for themselves, don't you? Just think, a home for around $59,000 again!!!!! The mortgage would be low so the father can work, the mother can raise the kids, and they can all live HAPPILY EVER AFTER!!!!! Ain't that America?

Nissi B

November 25, 2008 5:39 PM

In reference to Professor Case's comment of government bailing out homeowners. Shouldn't we feel the same way about The Insurance Commission. The Auto and Banking Industry? How can you fight a battle without proper weapons? It was ok for them, why not the consumer?

Real Estate Student.

Sean B.

November 25, 2008 6:03 PM

If Equity markets are back to 1995 level in the US and lower yet around the globe. US housing prices have a long way to go!!

The Case-Shiller Index stood at 185 (baseline 100 = year 2000, in 1995 that index stood at 88 for most metro cities in the US. However, this time there is more capacity than before due to the building boom.


http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_112555.xls

scott broomfield

November 25, 2008 8:51 PM

It very well may become (or is) a moral hazard. It is the biggest risk; those of us working hard to keep our mortgages current, when others get a free ride. The way to eliminate the hazard is to put in a price mechanism for the person getting the bailout. When the price of the house comes back and is then sold, then the taxpayer reaps a portion of the reward for having committed the capital during a time of risk. Fairness

nedm

November 25, 2008 9:27 PM

The housing market is gone. Even if it remains flat people will move because they have homes too big for someone to retire in. How many sellers vs how many buyers.

Michael Turner

November 25, 2008 10:17 PM

"Case-Sheller"? "Individual cites"? Did you fire your proofreaders? Hire them back.

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Scott

November 26, 2008 7:31 AM

How is Detroit an exception to the sunbelt trend? It's not in the sunbelt?

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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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