As Home Prices Drop, 'Serious Reasons To Worry' About Economy (VIDEO)

Home prices have dropped across America more than expected, in a slide that has led some experts to predict that housing is headed for a double-dip.

Yet despite a glut of homes lingering in foreclosure proceedings, analysts say that a recovery in the housing market will, in large part, depend on an overall economic recovery.

Data released this week from the Standard & Poors/Case-Shiller index across 20 major U.S. cities fell 1.3% in October from September, the third straight national decline.

Six cities -- Atlanta, Miami, Seattle, Tampa, Charlotte, North Carolina, and Portland, Oregon -- have hit new lows since the housing market began to struggle in 2006 and 2007. Atlanta showed the steepest decline, with prices falling 2.9 percent from the prior month.

"If home prices continue on this pace down, I think the economy has serious reasons to worry," Yale economist Robert J. Shiller -- and co-creator of the Case-Shiller Index -- told the Wall Street Journal in a recent interview. (SCROLL DOWN FOR VIDEO.)

Bad news in the housing market could ripple through to consumer spending, which has recently shown heartening gains this holiday season. Consumer spending makes up about 70 percent of the economy.

"Our concern on the double-dip is the consumer and the fate of the consumer," said Allen Sinai, chief economist at Decision Economics, Inc. "I think the lack of stable prices is a negative consumer fundamental for spending."

With unemployment mired at 9.8 percent, the housing market is hinged upon the job market. "The economy has to recover for the housing market to recover, not the other way around," said Patrick Newport, an economist with IHS Global Insight.

Homes remain a major part of many Americans' wealth -- households held $6.4 trillion of home equity at the end of the third quarter, according to a Federal Reserve report.

"It's unfortunate because a lot of families have all their wealth in their house, all their savings," said Sinai. "Household spending in general is hurt. There's a restraint on consumer spending."

The latest data has led some to predict that home prices are headed for a double-dip.

"The double-dip is almost here [...] There is no good news in October's report,"
David M. Blitzer, the Chairman of the Index Committee at S&P said in a press release. "Home prices across the country continue to fall. The trends we have seen over the past few months have not changed."

A broad housing market decline, many experts say, could continue through 2011.

"We expect house prices to decline again slightly in 2011. We're projecting ultimately they'll bottom in the third quarter of next year" said Alex Miron, an associate economist at Moody's Analytics. "We're expecting peak-to-trough decline of more than 30 percent."

But not everyone believes that a housing double-dip is inevitable. The 2010 numbers look particularly grim because of the expiration of the first-time home buyer credit in April, according to Stuart Hoffman, chief economist at PNC.

"I think the bottom line is, the drop in the past couple of months is comparing [numbers] to a year ago, exaggerated by the supposed expiration of house credit, and the actual expiration," said Hoffman.

The drop in home prices was accompanied by an increase in the number of foreclosures in the third quarter. Newly initiated foreclosures went up to 382,000 in the third quarter, at 31.2 percent spike from the second quarter, according to a report by the Office of of the Comptroller of the Currency and the Office of Thrift Supervision.

As a mass of foreclosed homes hits the market, home prices are likely to languish.

"Until the market works through those [homes], the house prices are going to be flat [or] down," said Miron. He pointed to the growing number of homes that are owned by a lender, but have gone through the default process and have failed to sell at auction.

"These are the homes that are most likely to be sold at bargain basement prices," he said. "There are almost 1 million, and the number has been rising for the past three years."

WATCH Robert Shiller's interview with the WSJ below:

Comments

[costellowriter]

08:34 PM on 01/16/2011

The homes that are for sale are still asking ridiculous boom time prices. Drop them to market level, and first time home owners will but them.
http://bizcovering.com/investing/silver-heading-toward-200-an-ounce/

[wtf-please]

01:29 PM on 01/07/2011

This is huge.. full judgment here

http://www­.scribd.co­m/doc/4647­2110/Ibane­z-Case-JAN­-2011

[Siebenstein]

08:02 PM on 01/03/2011

http://www­.seite3.ch­/USA+Today­+Kaliforni­en+bankrot­t+und+Obam­a+unbelieb­ter+denn+j­e/444644/d­etail.html


klick on the video, its in English.

[Kenz300]

12:22 PM on 01/03/2011

High inventories of unsold homes means there are too many homes.....

WIth inventories of unsold homes so high and more foreclosures every day driving down
prices of existing homes I'm surprised that home builders are still building homes.

How do we get the inventory of unsold homes down if builders keep building more?

Maybe new home builders should switch to buying and fixing up foreclosures until
the market stabilizes and inventory drops. They could do a lot to stabilize neighborhoods
by fixing up foreclosures. Some people are afraid to buy because of the cost of repairs.
If a reputable builder had already made repairs and the home was in move in condition
maybe we could jump start this market.

If new home builders put their people to work fixing up existing homes and stopped adding
new homes to the inventory for 6 months maybe we could reduce the inventory enough
to stabilize home prices.

When you are in a hole the first thing you need to do is stop digging if you want to get out.

Builders need to stay in business but maybe their business would improve if the unsold
housing inventory went down.

[Siebenstein]

07:09 AM on 01/03/2011

Home prices drop in some areas absolutely nvts, yet, the administration closes both eyes and pretends they do not see anything happening.
Under water homeowners need help---F.in NOW!!!!!!!!!

[how now]

11:18 PM on 01/02/2011

Wall Street journal article says 5 million homes have been lost to foreclosure in the last four years. 10% of homes with a mortgage. So if you figure family members - is that 10 or 15 or 20 mllion people? Add in the neighbors who are next. 11 million more homes on the way by some estimates times the occupants. Add in the businesses and people who got 32% on the cost of existing credit or got credit shut down by banks or who went bankrupt. Add in the resulting unemployment. How many people is that and counting? Still waiting for buyers to fix it? Wonder how many of those there are lined up now.

[LeeCalif]

06:27 PM on 12/31/2010

Watch this

http://www.democracynow.org/2010/12/24/dr_gabor_mat_on_the_stress

[LeeCalif]

06:22 PM on 12/31/2010

Prices HAVE to go down so people can afford these homes because wages aren't going up.

Going down is a must .

Check out Patrick.net It's best to rent instead of buying !!!!!!

[gregory57]

02:18 PM on 01/02/2011

It's called letting water find it's own level. The pendulum will keep on swinging, just like it always has.

[jabailo]

02:04 AM on 12/31/2010

a jobs boom plus falling col make america affordable again

[Raccoon1]

07:25 PM on 12/31/2010

Which jobs boom is that?

[ThatsTheTheWayItIs]

03:34 PM on 12/30/2010

Since when are falling prices bad for consumers and the economy?

House prices are still not affordable by historical standards. When they get back to affordability, the young will be able to buy houses, have families. The young are the consumers, they drive the economy.

Rising house prices during last decade was generational theft. We robbed the young of the future to pay the old, robbed future owners to pay current owners. How could anyone believe rising house prices makes the US richer? Yet Greenspan thought they did. My home went up in value, but as a result my 20-something sons can't afford to buy.

[CPAwADD]

08:03 AM on 12/31/2010

Failing prices means deflation. Prices fall because either demand is low or supply is high or the market is irrational. All are indications that the economy isn't functioning well.

[uniquindividual]

09:47 AM on 01/02/2011

However, in many markets, housing prices are still overvalued when compared to rental rates.

Adam Smith, in his classic 1776 book "The Wealth of Nations, noted that the real value of real property is a function of what it will rent for, because that number represents actual income from the asset.

[LeeCalif]

06:22 PM on 12/31/2010

It's not bad.

[wtf-please]

03:18 PM on 12/30/2010

Too bad the banksters didnt let everybody in on all the fraud subprime debt bombs they created.. we could have shorted it like they did with credit default swaps, then everybody wouldnt have been so angry.. lesson learned

[Wupta]

12:57 PM on 12/30/2010

The home prices will drop until it finds equilibrium in proper ratio to incomes. All attempts by the Fed and gov't to maintain the inflated value of homes will only prolong the recovery. The false market model has been exposed and has correctly self destructed. The proper ratio based on historically stable housing markets are 3.8 times income. Currently in some markets this ratio is as high as 12 to 15 times.

[muck-raker]

11:15 AM on 12/30/2010

with the accelerated FORECLOSURES and Outsourcing we are on the cusp of this: The depression affected the poor so much that they felt nothing but hopelessness.

Like human pack rats, ordinary people were forced to carry,lumber, tin, cardboard, tar paper, glass, composition roofing, canvas, and other materials to sites of America's new real estate boom. Some fortunate men were skilled in carpentry, and were capable of constructing fairly solid structures, while others less skilled scraped together packing boxes and other discarded items to provide shelter. Unemployed masons salvaged stone blocks and old bricks to create 20-foot tall shanties. However, more unfortunate men were reduced to sheltering themselves inside empty water mains.

Hoovervilles and the economy

As economic crash of 1930s dragged on, more and more people were ruined. Delinquent taxes, drastically rising unemployment and mortgage foreclosures were heavy burdens to overcome. Those factors forced ordinary people to either move into Hoovervilles or become transients. more than 100,000 businesses failed across the nation. When President Hoover left office in 1933, national unemployment hovered at a staggering 13 million —

Getting rid of Hoovervilles was difficult task; people had no other place to call home. Several attempts were made to eliminate those villages during 1930s, but government and city officials couldn't really do anything about health issues that Hoovervilles created.

Although most American cities participated in New Deal programs, much of the country's political leadership was not enthusiastic about most federal initiatives.

http://www.u-s-history.com/pages/h1642.html

[ThatsTheTheWayItIs]

03:37 PM on 12/30/2010

The unemployment rate was 4.1% in 2007, over 10% two years later. You don't lose that many jobs to outsourcing in two years. Those jobs disappeared, they didn't go anywhere. They were domestic service jobs related to the phony housing boom: real estate, financial, construction, ...

Outsourcing has nothing to do with current high unemployment.

[muck-raker]

04:05 PM on 12/30/2010

on some sites that are keeping track of unemployed are saying the REAL total is 23% when one takes into account the people that have given up finding a job. THEY are no longer counted...also I do not understand when you say jobs disappeared. If you become without a job for one reason or another I do not see how it makes any difference...you have no income to meet expenses..now this: File Format: PDF/Adobe Acrobat - Quick View
In 2007, 5.6 million jobs were lost or displaced by the U.S. non-oil trade deficit. .... in the trade balance.2 Since U.S. imports have increased ...
epi.3cdn.net/58f222c3caaded4953_r8m6iv1t8.pdf

[Raccoon1]

07:30 PM on 12/31/2010

So? All the people employed by the companies now overseas went overseas too? Thousands of companies took their factories apart and re-assembled them overseas.

[LINY01]

10:54 AM on 12/30/2010

One blogger's spin on this mess, a very interesting perspective I thought.

"As cash left the nations financial system to cover the repurchase of the fraudulent mortgage backed securities, banks found their balance sheets slipping into the red. The banks were being driven into insolvency making good on the bad paper and this is what triggered the epidemic of fraudulent foreclosures. Banks needed real assets on their balance sheets as quickly as they could to get their balance in the black and their banks out of insolvency. So shortcuts were taken which became known as "foreclosuregate". For some banks, it was too late. Hundreds of banks either dragged down by the fraudulent mortgage securities or made insolvent buying back the bad paper, have been shut down. For other major banks and financial institutions, the tactic worked and they stayed afloat, for which making millions of Americans homeless seemed a small price to pay! Indeed one might explain the hitherto unexplained reluctance by the Federal Government to stem the offshoring of American jobs as a deliberate policy of setting up Americans to lose their homes in order to preserve the capital structure of the banks!

In other words, the American people were looted to make good on the fraud perpetrated by Wall Street not only against American financial institutions, but bankers in the Eurozone as well.

Source: WRH

[ThatsTheTheWayItIs]

03:43 PM on 12/30/2010

Interesting, but wrong. Real story: subprime lenders write loans to anybody, just as the advertised: "nobody refused". Just like credit card companies: fine print, outrageous terms and interest rates. You sign the contract, borrow money, you are liable for it. There is no legal obligation for any lender to verify your credit.

They sold those bad loans to the big banks and others. Some of them were packaged with good loans, sold as CDOs to other suckers. But most ended up at the big banks, they lost on this. A bailout keeps you from sinking, it's not a profitable exercise. Want proof? Ameriquest, Countrywide, Lehman, Bear Sterns, they all went under. As to those bailed out, they have repaid all that money, now nobody will buy their products. Would you buy a CDO from them? Their business is finished, the big banks will never recover. Stock prices before crash and now:

Goldman $240 = $145  Citigroup $55 = $4 (down 93%)
Morgan Stanley $73 = $25  BOA $55 = $13
AIG $1440 = $43 (down 97%)

[poaster]

10:46 AM on 12/30/2010

I didn't know HP hired Captain Obvious to write their headlines for them.