Tuesday, March 29, 2011

Deflation Watch Continues: More Bad News on Housing

I've written several times about the dismal state of the housing market.

But, unfortunately, the news keeps getting worse.

The most relevant point, to me, is that housing prices continue to fall despite the huge efforts of the federal government to reverse the tide. Mortgage rates are still very low relevant to the historic experience of the last few decades, and statistical data would suggest purchasing a home rather than renting is a more attractive option than it has been for decades.

Still, as is true in stock markets, psychology tends to almost always win out over data, at least in the short run, and housing is no different.

In my conversations with real estate brokers and home builders, the number one impediment to someone buying a home today is the pervasive belief that house prices will be lower 6 months from now. No one wants to feel like a sap for plunking down a large chunk of their life savings to buy a home that they are not sure will maintain its value.

Then there's this: according to data released yesterday, fully 13% of the homes in the United States now stand vacant. In addition, S&P estimated that there is nearly a 4 year backlog of houses that are either in default or foreclosure.

Here's an excerpt from today's news from Bloomberg (I have added the emphasis):

The S&P/Case-Shiller index of property values in 20 cities fell 3.1 percent from January 2010, the biggest year-over-year decrease since December 2009, the group said today in New York....

...Eighteen of the 20 cities in the index showed a year-over- year decline, led by a 9.1 percent drop in Phoenix. In January, prices in 11 markets dropped to fresh lows from their 2006, 2007 peaks, the same as in December....

...The median price of existing homes, which make up more than 95 percent of the market, slid 5.2 percent from a year earlier, erasing all gains made after February 2002, according to the National Association of Realtors. New-home prices dropped to the lowest level since December 2003, a Commerce Department report showed.

Home Prices in 20 U.S. Cities Fell 3.1% From Year Earlier (3) - Bloomberg.com

Talk about deflationary pressures!