Long ago predicted – no surprise here, at all. From CNBC:
U.S. single-family home prices fell for a fourth straight month in October pressured by a supply glut, home foreclosures and high unemployment, data from a closely watched survey showed Tuesday.
The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 1.0 percent in October from September on a seasonally adjusted basis, a much steeper drop than the 0.6 percent fall expected by economists…
The improvement in home sales and prices earlier this year was, as also predicted, entirely mythical…forced through by a government subsidy which merely advanced home purchase dates, thus giving the appearance of health to the market. The hard facts of life about housing are these:
On the demand side –
1. Unemployment is high, thus taking millions of potential buyers out of the housing market.
2. A large number of potential buyers are out of the market even if they have jobs as their credit rating has been wrecked because they lost their last house.
3. Baby boomers are heading for retirement and thus, if anything, are looking to downsize their housing – meanwhile, the follow-on generations are not as large, thus adding another hit to potential demand, even if the economy were really improving.
4. Banks are wary of taking on loans in a poor economy and thus under writing rules, too long ignored in the bubble, are essentially taking a lot of people out of the market.
On the supply side –
1. There is a very large inventory of unsold homes on the market. If everything started selling at a brisk pace it would still take a long time to get supply down to the point where prices can even so much as stabilize, let alone increase.
2. In addition to the unsold inventory, there is the “shadow inventory” of perhaps millions of homes owned by banks but kept off the market for fear of driving prices down even lower…but, eventually, they do have to be sold.
The ripple effects on the economy of this are quite large – think about it: how often do any of you out there buy a new ‘fridge, washer/dryer or other major household item? About once in 10 to 15 years – unless you buy a new home, in which case the desire is to have a whole slate of new things to put in the new home. Slower sales of new and existing homes means less demand for such high value, durable goods…thus impacting manufacturing. And on and on it goes – don’t have a new home, don’t need a new landscape; don’t have home equity, can’t afford that addition or swimming pool…etc, etc, etc. With housing back in to the dumpster, it will only take a small, additional shock to the economy to tumble us right back in to recession.
Oh, did I mention that gasoline prices are more than $3 a gallon and headed higher?
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