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Case Shiller home prices "less bad"
Wednesday, April 29, 2009
We're traveling this week, so, certain items like yesterday's Case Shiller report(.pdf) on home prices are being mentioned here with a bit of delay. Here's the updated 20-city graphic.
The rate of decline appears to be slowing - only ten of the twenty cities reported a record annual plunge in prices! Poor Detroit fell off the chart here registering only 74.7 in February.
4 comments:
Less bad but it's still quite bad.
the price drops are slowing because prices are finally getting to a point where working stiffs can kinda-sorta afford mortgages on them. There's a lot of activity in the $300,000-400,000 range. With a 20% down payment, the monthly payments would require minimum debt and minimum annual wages in the range of $55,000-80,000, roughly. For every additional percent of interest on those mortgages, the minimum wage requirements will increase by about 10%. Assuming we get back to a healthy market with around 7.5% interest, we're talking minimum wages of $70,000-100,000. If the pendulum swings too far as the fed phases out from its current activities and we see those rates push up to 10%, we're talking minimum salaries about 85,000-120,000 to support current prices. I hesitate to even consider where we'll be if interest rates on mortgages rise to where they were in the late 70's when my parents bought their house. As if paying more than 1.5 million dollars over 30 years for a $300,000 loan doesn't sound frightening enough, a loan like that would require wages something on the order of 4x what they are now to service such a loan. So the question isn't about how much less bad todays numbers are than yesterday but rather how much more worse [sic] the situation will be when the massively inflationary policy currently being incubated comes homes to roost.
Aside from zip codes where prices have completely collapsed, most still have high valuations in terms of price to income and price to rent. Less bad now but more bad coming.
It strikes me that the curves for Phoenix and Las Vegas were steeper on the upturn than the others. Maybe they will crash harder and that'll be the place to buy in for cheap. Any nobody wanted to live in Detroit to begin with so now you can really forget it.
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