Tuesday, December 30, 2008

Home Prices Accelerate Free Fall

The deflationary black hole of collapsing housing prices continues to suck millions of families each month into its destructive vortex. The government could have used its trillions in bailouts to prop these families up, but instead wasted it on imaginary financial instruments and bank equity. In this housing deflation, that is like putting cups of water into a draining pool. Literally, it is throwing good money after bad.

The truth of the matter is that all these homes are just as valuable as they were last year or the year before. Only their monetary price has fallen, and that is only a problem because they are all leveraged with high debt levels. In the absence of a debt load, a fall in home prices hardly matters. In fact, the home prices are falling precisely because of the high debt load, because unpayable debt is forcing a liquidation.

Home prices are now at the level they were five years ago! Do you know anyone who hasn't purchased or refinanced in the last five years??? Of course not, because just about everybody refinanced during the up market, which means that basically, everyone is now upside down on their mortgage, an inevitable foreclosure waiting to happen. And the collapse is just now spreading, accelerating nationwide, with new record declines in just about every city! We are not even close to the bottom yet, let alone a recovery.

Keep in mind, almost no loans made in these last five years are still with the local bank who originated them. Instead, they were packaged into financial instruments and sold on the wider market, which makes them impossible to re-structure by the current loan servicer. Everyone's hands are tied, the only option at this point is government action directly related to home values and mortgage debt levels. Instead, our leaders talk of repairing roads; truly we are on a ship of fools.

Home prices continued to drop as the economic downturn deepened further in October, according to the S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, with home prices in the Sun Belt continuing to be hit hardest. "The bear market continues; home prices are back to their March 2004 levels," said David M. Blitzer, chairman of S&P's index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines.

As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Mr. Blitzer said. The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index's 13th straight monthly report of a record decline. In 20 major metropolitan areas, home prices dropped 18% from the prior year, also a record, and 2.2% from September.

Once again, none of the regions was able to stave off a decline from September to October. Month-to-month decliners were led by Detroit, which fell 4.5%, and San Francisco, which dropped 4.2%. Atlanta, Charlotte, Detroit, Minneapolis, Tampa and Washington had their largest monthly declines on record.

For the seventh-straight month, no region was able to avoid a year-over-year price drop. Phoenix and Las Vegas were again the worst performers, with drops of 33% and 32%, respectively, from a year ago. San Francisco, Miami, Los Angeles and San Diego followed, with declines between 27% and 31%. Year-over-year, Dallas and Charlotte again had the best relative performance, with declines of 3% and 4.4%, respectively. Three new markets joined the group of areas posting double-digit declines from a year ago - Atlanta, Seattle and Portland showed drops of 11%, 10% and 10%, respectively. Cleveland and Denver showed slight improvement in their year-over-year returns compared with last month's report.

The Case-Shiller data came a week after a government report that sales of previously occupied homes plunged, dropping 8.6% in November, as the median price slid 13%, the largest drop since the survey began in 1968. New home sales fell 2.9% in November, their fourth drop in a row, and prices remained below year-earlier levels.

The glut of housing remains as credit stays tight and the economic outlook remains bleak as mounting job losses have added more stress to U.S. households. Even intensified efforts to help borrowers stay in their homes have made little headway

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