NEW YORK (Reuters) – Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow.

Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month.

It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates. Many economists expect further price drops, even if there are some anecdotal signs of growing demand, such as in pending home sales data.

“For the next six to nine months, the larger factors affecting the housing market that will produce more home price declines will be the excess inventory of homes, high negative equity and foreclosure rates, and weakened demand due to elevated employment, Stan Humphries, Zillow’s chief economist, said in a blog post.

Declines are accelerating, and it will take a while before falling unemployment and other signs of economic improvement support the market, Zillow said.

Home prices fell at a 0.78 percent pace in November, the fastest since February 2009, the company said.

(Reporting by Al Yoon, Editing by Kenneth Barry)

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By Dirk van Dijk

Housing Starts rose in November to a seasonally adjusted annual rate of 555,000 from 534,000 in September, an increase of 3.9%. The October numbers were revised higher from 519,000, so it is possible to see the increase as 21,000 or 6.9%.

Relative to a year ago, they are down 5.8%. Quite frankly, a year ago was a pretty lousy time for the home builders, as well.

If one looks at only single-family houses, the improvement was somewhat better, rising to 465,000 from 435,000 in October (revised down slightly from 436,000), an increase of 6.9%. The volatile multi-family (condo and co-op) sector plunged 18.2% to an annual rate of just 72,000 (although October was revised much higher to 88,000 from 74,000 units). Year over year, single-family starts are down 5.8% and multi-family starts are down 7.7%.

The total starts number was above consensus expectations of a 545,000 annual rate. While the increase, the upward revisions and the beat of expectations are all good news, at least in terms of short-term economic growth, one should not forget just how depressed things are in the housing market.

Housing Starts peaked in June of 2006 at an annual rate of 2.273 million. We are thus still 75.6% off of the peak levels.

Housing Starts Extremely Important
It is hard to overstate just how important housing starts are to the economy. Yes, at this point, residential investment has declined to the point where it looks almost insignificant — just 2.22% of GDP in the third quarter, down from over 6.34% of GDP at the height of the housing bubble. However, historically, residential investment — of which new home construction is the largest part — has always been the main locomotive in pulling the economy out of recessions.

Take a good hard look at the first graph below and the relationship between when the lines bottom and the light blue recession bars. If you want to know why this recovery seems so anemic, look no further than this graph.

Even the 2001 recession, which was not caused by a housing downturn, saw a sharp acceleration in housing starts as the recession came to an end. Of course, since starts were jumping but were not starting from a depressed level, that boom later became known as the housing bubble that put us in this mess to begin with. Every other recession was preceded by a sharp fall in housing starts. 

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Foreclosures

RealtyTrac has just reported that even though the volume of foreclosed homes plunged by 25% from Q2 to Q3 and 31% from Q2 of 2009, the discount on foreclosed homes has hit a five year high, as interest in even ultra bargain properties has collapsed following the expiration of the homebuyer tax credit, and confirming yesterday’s bad Case Shiller (remember that one?) number. Per RealtyTrac: “foreclosure homes accounted for 25 percent of all U.S. residential sales in the third quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process — up from a 26 percent discount in the previous quarter and a 29 percent discount in the third quarter of 2009.” Yet despite the major price drop, buying interest has evaporated as nobody there is no longer any purchasing power left in the lower and middle sections of the housing market: “a total of 188,748 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the third quarter, a decrease of 25 percent from the previous quarter and a decrease of nearly 31 percent from the third quarter of 2009. The average sales price of properties in some stage of foreclosure was $169,523, down 2.46 percent from the previous quarter and down 0.44 percent from the third quarter of 2009.” And while the average price of non-foreclosed homes posted a slight uptick in Q3, the volume drop was even worse: “The average sales price of properties not in foreclosure was $249,721, up 6.42 percent from the previous quarter and up 4.36 percent from the third quarter of 2009. Sales volume of non-foreclosure properties decreased 29 percent from the previous quarter and nearly 31 percent from the third quarter of 2009.”

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The housing market seems to remain all over the place. Some of the headlines seem to be more positive but we are still very concerned about the summer months and going forward.

• Freddie and Fannie are clearly bankrupt but continue to get tax payer funding.
• Interest rates will have to move higher and government incentives have gone by the wayside.
• It is very difficult to get a mortgage right now, and most are coming in one form or another from the government agencies, which are in very bad shape.
• What really scares sellmyhouse.com, is the fact that there are so many foreclosures in the pipeline and default notices have increased over the last few months, not decreased.
• The supply side of the equation is about to be throw out of whack again, and that is never good for prices.

Preparing for this, if it does unfold as we suspect, will be about surviving the next year or so. Large inventory + low mortgage base = owner financing explosion. Only time will tell if we are correct but we began positioning for this a few months ago with our new website and service.

A recap and links provide the story:

1. Foreclosure Inventory = 103 Months
2. New Home Sales Still Ailing
3. Home Prices Fall in Major Cities
4. Despite Positive Signs in Housing, More Declines Expected
5. The Mortgage Problem Hasn’t Gone Away
6. Does Freddie Mac Deserve Another $10.6 Billion?
7. Fannie Mae: Where the Bankrupt Only Get More Bankrupt
8. The Disconcerting Truth About Fannie and Freddie Default Rates

SellMyHouse.com Staff Writer

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On April 30, the Tax Credit will be gone. Banks seem to be holding ’shadow’ REO inventory that has been reported in the 4-8 million range. Interest rates are set to go higher because of all of the government debt that has been added to the books trying to avert all this.

However, the real scary issue is relayed in a recent Charlie Rose interview with housing expert Robert Shiller:

Charlie Rose: You’ve said that 90% of the housing market is supported by the government.
Robert Shiller: Well, it’s 80% or 90%. Really almost the whole market now is government. And we know this can’t last.

Rose: And that means prices are being artificially inflated?
Shiller: It seems to. Government support is especially prominent in sales of existing homes, which shot up to over 6 million on an annual rate in November 2009, the month that the home buyer tax credit initially was supposed to expire.

Fannie Mae has reported the rate of serious delinquencies (90 Days overdue) for conventional loans in its single-family guarantee business jolted to to 5.52% in January from 5.38% in December. This is a 100% increase since January 2009. But look at the chart below and explain to me how we are anywhere near an end to this housing crisis!

It is our stance that we still have some real issues to work thru before we can claim “an end to the housing crisis”.

Jason Roberts

Founder & CEO

www.SellMyHouse.com

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