If you’re bleeding equity right now, or freaking out because your 401k still hasn’t recovered from fall 2008, I feel for you, but this had to happen:
Home prices are dropping in the nation’s largest cities and are expected to fall through next year, with the worst declines coming in areas with high numbers of foreclosures.
The Standard & Poor’s/Case-Shiller 20-city home price index fell 1.3 percent in October from September. All cities recorded monthly price declines.
Atlanta recorded the largest decline. Prices there fell 2.9 percent from a month earlier. Washington, which had posted increases for six straight months, dropped 0.2 percent in October.
The 20-city index has risen 4.4 percent from their April 2009 bottom. But it remains 29.6 percent below its July 2006 peak.
It will continue to happen. The mortgage modification programs that Obama rolled out not only don’t work, but if they did, would simply delay, not head off, a precipitous drop in home prices.
As I wrote in August:
America’s homes were never actually worth what easy credit and rabid consumerism led us to believe.
“Anybody who puts their house on the market today, for 5-10% less than other people are putting their home for, they’re going to find a buyer,” [said Jim Klinge, America’s most realistic realtor]. “Most sellers are 10-20% above where they should be.”
Klinge isn’t alone in his assessment. “Nobody out there complains when the price of gasoline goes down, the price of a computer goes down, or the price of a car goes down,” said Tim Cavanaugh of the Reason Foundation. “Why are we worried when the price of a house goes down?”
The simple answer is that high prices mean homeowners are less likely to default. In turn, this means fewer foreclosures for banks and higher commissions for realtors.
But this kind of wishful thinking could have long-term consequences, Cavanaugh said. “You could see a second bubble where houses don’t return to 2006 prices — so you get houses up to 75% of what they were in 2006 and we find that the market can’t even bear this much.
To potential buyers: Congratulations. Please take a mental snapshot of the unhappy people from whom you purchase your home/undeveloped real estate/office park. Catastrophic system failure happens to the best of us.
To everyone else: Hang in there.
Photo courtesy of Marco Bellucci under creative commons license