September Case- Shiller Delivers Housing Blow

My worst fears about the deteriorating state of the US residential housing market were confirmed today with the release of the closely watched Case-Shiller Home Price Index. Nationwide, Q3 delivered a 3.9% decline in home prices, hot on the heels of a whopping 5.8% plunge in Q2. Most markets are at 8-10 year lows with the exception of Detroit, which is plumbing a new 20 year low.

Negative equity cities, and indeed, entire states, are proliferating like wildfire. The data give even more strength to the bleaks forecasts I delivered in my recent November 16 piece on the subject, “Why Residential Real Estate Will Not Recover.”

The market took no prisoners. Year on year falls were greatest in Atlanta (-9.8%), Minneapolis (-7.4%), Las Vegas (-7.3%), and Tampa (-6.7%). The closest Q3 haircuts were seen in Atlanta (-5.9%), San Francisco (-1.5%), Tampa (-1.5%), and Las Vegas (-1.4%). What is going on in Atlanta? Haven’t they heard that the Civil War is over and they can stop burning the city? The only green figure was seen in Washington DC, which saw a 1% YOY gain, buoyed by an every rising tide of spending by the government and the lobbyists there to grease the works.

There seems to be a generational migration towards rental housing underway. New families are not being formed at past rates, as unemployed adult children living rent free in parents’ basements do not exactly make hot marriage candidates. Almost all new construction has been shifted to multifamily dwellings. In San Francisco I have seen condo projects converted midstream into rentals before buildings are even finished to satisfy the new demand.

If you followed my advice years ago and unloaded your dwelling, why should you care about any of this? There is not a chance that the banks have taken a further 25% decline in home prices into their plans. Collapsing house prices brings collapsing banks, but this time congressional gridlock assures there will be no TARP and no bail outs. Goodbye financial system. This is what bank share prices are screaming at us, which look like grim death warmed over.

I would spend more time looking for great deals in the real estate market. But quite honestly, it is kind of a downer spending your Sunday afternoon visiting an open house, only to find the listing agent hanging from the shower head. Rent, don’t buy.


Not Exactly a “BUY” Signal for Housing