We continue to see a free-fall of home prices, which have now decreased for ten straight months when measured year-over-year. The S&P/Case- Shiller 20-city index for February marked a 3.3% decline in home prices from February 2010 – the largest year-over-year decline since November 2009. This places us just shy of an official “double dip” in prices, with home prices falling 32.56% from the height of the housing market.
Most market participants have expected this news for many months as the supply of homes continues to place pressure on prices to fall and foreclosure and short sales contribute to the impact. So where do we go from here ?
The Positive News
Homebuyer affordability continues to break a new record every time prices decline (rates haven’t risen…they remain only 0.60% from their record low). So if declines are increasing affordability - and that is without any decline in real wages - then the point of equilibrium for buyers to afford a loan and extract some of the supply will accelerate. The concern is “real wages” which are going to be hindered by the tax imposed on purchasing power given higher commodity prices, causing potential owners to use more of their income for living expenses and less on housing….vicious circle isn’t it ?
Extracting positive news from this is tough, but there remains hope. The existing homes sales data was positive and we have a jobs market which has not really experienced a huge contraction in wages…even hours worked are rebounding, growing by 2% from their mid 2009 low point. Despite aggregate nation reductions in price, regional improvement in price is showing life and we continue to expect regions with low unemployment and minimal negative equity exposure to show strength in prices. That’s not growth but at least it’s sustainability.
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