Worst is over for real estate?

by Rodney Forbes on April 30, 2009

After deteriorating relentlessly for nearly three years, the much-watched S&P/Case-Shiller Index showed a brief glimmer that plummeting home prices are at least slowing their fall.

Prices are still plunging: Home prices in 20 major cities across the country have fallen 18.6% between February of this year and last, according to the index released Tuesday. That painful drop, however, is an improvement from January, when prices fell an unprecedented 19%.

“This is the first month since October 2007 where the 10- and 20-city composites did not post a record annual decline,” says David Blitzer, the Chairman of the Index Committee at Standard & Poor’s, in a statement with the release. “We will certainly need a few more months of data before we can determine if home prices are finally turning around,” he cautioned.

The Palm Beach County area was one of the first areas of the country to see dramatic drops in real estate prices, starting in 2007. According to many it may also be the first scene of a real estate recovery.

The Case-Shiller Index paints a particularly brutal portrait of the housing bubble in American cities. All 20 cities in the index have seen home prices decline by more than 10% since their bubbles burst. In Phoenix, a market particularly flooded with foreclosures, home prices have fallen 51% since June 2006.

Six other American cities have seen declines of more than 40% since their peaks: Detroit, Las Vegas, Los Angeles, Miami, San Francisco and San Diego.

Home prices are still falling in every city tracked by the index. But in 16 of the index’s 20 cities, home prices are no longer falling as quickly. Historical data from the Case-Shiller Index show home prices beginning to charge up a mountain in the mid ’90s; by 2004, home prices were posting record improvements, with the 10-city index showing annual price increases of 20%.

Then, in 2004, the size of the increase began to slow (in mathematical terms, the second derivative became negative). By 2006, prices were falling, and by 2007, the fall accelerated to the highest rates the 20-year-old index had ever recorded.

It is at least a glimmer of good news for the battered housing market, even if it does not mean price recovery has begun. The plummeting housing market is a key barrier to economic recovery.

Falling home prices have decimated consumer confidence. Economist Robert Shiller of Yale University, one of the designers of the Case-Shiller Index, told Forbes earlier this month that, despite tentative evidence that confidence is stabilizing, “I do think it is too soon to draw any conclusions that confidence has bottomed out, especially since home price indices have been continuing to fall, and if this continues it will continue to damage balance sheets.” Not knowing when home prices would stop falling has hindered banks in pricing mortgage-related assets.

The housing report is also good news for the “stress tests” the Federal Reserve is administering to the country’s 19 biggest banks to determine how well they can weather a deep recession. The tests evaluated whether or not the banks could survive a 22% annual decrease in home prices.

Many economists feared this assumption was not pessimistic enough–that banks could survive the stress test, but still perish when the economy proved even worse. Today’s index provided a glimmer of hope that the economy could at least outperform the adverse stress test.

Source: TimandJulieHarris.com

If you are interested in buying or selling a home in the Palm Beach County area, specifically Palm Beach Gardens, Jupiter and West Palm Beach, please visit my Forbes Realty website. For frequently updated information on foreclosures, short sales, real estate news and market conditions visit my South Florida Real Estate Report blog. There are many free reports as well as free access to MLS listed properties. Call me directly at 561-337-4810

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