House prices plunged again in October, with the rate of year-over-year decline accelerating to a new record high of 19%. The peak-to-trough decline in the Case Shiller 10-city index is now 25%; the 20-city index is down 23%. (Full release below).
We still occasionally hear folks predicting that the overall house-price decline might be on the order of 20% or so–or maybe 25%, tops. Might be time to adjust those forecasts. Given the current rate of decline and the fact that house prices still have yet to reach their long-term historical average relative to incomes and rents, we remain comfortable with our prediction of a 35%-40% total decline. Unless the rate of price decline moderates soon, this could even prove conservative.
The Obama administration will throw the kitchen sink at this problem, but we still have yet to hear a plan that might actually work. It’s just hard to see how already over-leveraged consumers can be induced to pay above-average prices for houses and take on more debt when layoffs and the recession are still gaining steam. The only solution to the house-price collapse, we think, is more price drops and time.
In any event, October’s 18% drop at least should make those who had grown to expect a 10% gain every year rethink their model.
Home prices posted another record decline in October, falling 18% compared with a year earlier, according to a closely watched report released Tuesday.
The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.
“The bear market continues; home prices are back to their March 2004 levels,” says David Blitzer, Chairman of the Index Committee at Standard & Poor’s.
Sunbelt cities suffered the most, but most of the country is watching home values fall. In Phoenix prices have plunged 32.7% since October 2007, Las Vegas home values are down 31.7% year-over-year, while San Francisco prices fell 31%. Miami, Los Angeles and San Diego recorded year-over-year declines of 29%, 27.9% and 26.7%, respectively.
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