Declining Home Prices - January

The S&P/Case-Shiller Home Price Index released numbers today showing a continued decline in the price of single family homes across the US. The 10-City Composite index fell to -11.4% over a year, setting another record low, while the 20-City Composite fell to -10.7%. An excerpt from the press release:

“Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining – Charlotte North Carolina – eking out a benign 1.8% growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January.”

I won't bother uploading a chart showing the price decline, but I found some interesting charts/tools on the Macromarkets website.

Looking at the data, unless you were buying homes in certain markets you would have made more money in stocks and commodities over the past five years. If you extend the time frame out to 10 years, real estate does outperform most asset classes. Its not the get-rich-quick-scheme that all those late-night infomercials tried to sell everyone, now is it?

Table comparing the Composite-20 Home price index to other asset classes:

Table comparing the Composite-10 Home price index to other asset classes:

A 10-year chart comparing the Composite-10 Home price index, Boston, Miami & Los Angeles to bonds:

What is interesting is that up until about 2003, the 10 City price index tracked the bond market quite closely. In 2003 the Fed dropped rates to 1.0%. Do you think there is a link between the 1.0% Fed rate and the start of the run-up in home prices?

Source:
'US Home Prices Drop in January', Vinnee Tong, AP
http://www.macromarkets.com/csi_housing/MSA/composite-20.asp

Press Release:
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_032544.pdf