Last week, the United States Case-Shiller 20-Cities Composite House Price Index took an unexpected plunge, falling 1.3% in October from a month earlier. Prices have now fallen by around one-third:
[Click all to enlarge]
Month-over-month prices fell in all metro areas covered by the index. And in six markets -- Atlanta, Charlotte, Miami, Portland, Seattle and Tampa -- house prices reached their lowest level since the housing bust began in 2006-07.
The destruction of household wealth since 2007 has been shocking. According to the Federal Reserve, household net worth has declined $11 trillion from its peak in 2007. Relative to GDP, household net worth has fallen from around 470% in 2007 to around 375% currently. In fact, household net worth is currently near its long-run average level prior to the stock market and housing bubbles, as the following chart from Calculated Risk illustrates:
Much of the destruction of household wealth is due to the decline in housing values. United States housing values as a percent of GDP have fallen considerably and are not far above historical levels. However, mortgage debt as a percent of GDP remains near historically high levels, suggesting more deleveraging ahead for households, as the following Calculated Risk chart shows:
As bad as the situation has become, it appears that U.S. house prices have further to fall. A recent articleby the Dallas Federal Reserve ?shows that United States house prices are still 23% above their long-term mean, as this chart shows:
The Dallas Fed's paper notes that the United States government has artificially supported house prices through: purchases of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) government-sponsored entity bonds, which have eased mortgage rates; mortgage modification plans, which have deferred foreclosures; and tax credits, which boosted entry-level home sales.
No comments:
Post a Comment