The Housing Chronicles Blog: Existing home price declines greatest in overbuilt markets

Wednesday, March 26, 2008

Existing home price declines greatest in overbuilt markets

The latest S&P/Case-Shiller data shows a record decline of nearly 11% for the annual period ending January 2008, with the steepest falls found in over-built Las Vegas (-19%), Miami (-19%) and Phoenix (-18%). In Southern California the declines were all far into the double digits, led by San Diego (-17%), Los Angeles (-16%) and San Francisco (-13%). From a story:

The S&P Case/Shiller Home Price index of 20 key markets, released Tuesday, shows that home prices plunged 10.7% in the 12 months ending January. That marks their lowest level since the index launched in 2000.

Of those 20 metro areas, 16 reported record annual declines. Ten of those cities posted double digit declines through the 12 months that ended in January.

The survey's 10-city index fell 11.4% year-over-year, its steepest decline since its inception in 1987...

While regional declines in home prices are not uncommon, the current decline is the "first national decline we've had," said Robert Shiller, Yale professor of economics and co-founder of the index.

"In a historical context we're down substantially, down more than at any other time that we've been keeping track," he added...

Michael Strauss, chief economist at investment firm Commonfund, says that steep price declines are no surprise, given the number of homes on the market.

"When inventory is so high we're likely to see a decline in prices," he said.

Cities like Las Vegas and Miami, where speculative buyers helped fuel the housing boom, are seeing sharp reversals.

"Some of the cities that soared the most are now retracting the most," according to Strauss. "Though it may be disappointing to some, from an economic stand point it makes a lot of sense."...

Mike Schenk, senior economist for the Credit Union National Association, says the decline in home prices is a symptom of serious economic problems, but adds that the environment is improving for home buyers.

"Affordability is actually quite high," he said. "This is a pretty good market to consider taking the plunge. And it's going to get better as we go forward."...

Across the nation, the market for lower-priced homes has been the most volatile over the last 12 months, a phenomenon Shiller thinks is a result of the ongoing subprime crisis.

"It's going to take those markets a long time to recover," Shiller said.

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