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February 15, 2007
| Pop Goes The Bubble | Economy |
The housing bubble looks to be popping in earnest: the fourth quarter registered the largest drop in home prices ever recorded. Prices are now falling in more markets than they are rising. CNNMoney:
The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter of a year earlier, according to the report from the National Association of Realtors. That's the biggest year-over-year drop on record, and follows a 1.0 percent year-over-year decline in the third quarter.
In addition, 73 metropolitan areas reported a decline in the fourth quarter, compared to a year earlier. That outpaced the 71 that saw a gain. It was both a record number and percentage of markets showing a decline in the group's quarterly report. Five markets saw prices unchanged.
That decline was a far more widespread than the third quarter, when only 45 markets reported drops and 102 saw gains, or the second quarter when only 26 saw a year-over-year slump in prices. The national median price was still showing a year-over-year gain in the second quarter.
The most recent median prices are down even more — 3.4 percent, since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the last six months, with eight reporting double-digit declines. [...]
The nation's leading home builders have all reported declining prices for new homes, which are not captured in this report. [Emphasis added]
Retail sales are highly correlated with housing prices, so falling housing prices will cause significant ripple effects elsewhere. The resulting economic slowdown will reduce housing demand (and hence housing prices) even further, which will cause further economic slowdown, etc., in a self-reinforcing feedback loop.
A year or two ago, lenders were throwing loans at anyone who wanted one. Now they're regretting it. MarketWatch:
Major financial firms like Merrill Lynch, J.P. Morgan Chase, and HSBC Holdings, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.
The people who can't make their mortgage payments are going to have to start dumping their homes on the market, creating another feedback effect. It's musical chairs, and the music's stopping. If you've already got a seat, you're happy. Otherwise, not so much.
Posted by Jonathan at February 15, 2007 05:31 PM
