By Ash Bennington, NetNet writer, special to cnbc.com:
According to economist Nouriel Roubini, the housing market is in a double dip. And negative Case-Shiller Home Price numbers out today only confirm that unpleasant truth.
“It’s pretty clear the housing market has already double dipped,” says Roubini. “And the rate of decline is stronger than in previous months,” he said of the new housing data.
Aside from below trend economic growth, there are two factors specific to the housing market that are putting downward pressure on home prices.
The first factor is the expiration of federal home buyer tax credits for first time home buyers.
“If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April,” Roubini said.
“That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months,” Roubini wrote in a text message earlier this morning.
The second factor putting downward pressure on home prices is the ongoing chaos with mortgage documentation, and the consequent suspension by banks of mortgage foreclosure proceedings—which has actually worsened the underlying problems in the housing market.
“There has been an effective moratorium on foreclosure,” said Roubini.
And the beginning of the end of that moratorium means more housing supply is about to become available on the market.
“The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year,” Roubini says.
Both factors, taken in concert, set up a scenario where market fundamentals put downward pressure on prices: “Supply will increase, demand will drop,” Roubini said.
The Case Shiller Composite-20 Index, which represents the broadest measure of U.S. home prices in the survey, fell 1 percent on an adjusted basis during the September/October time period, based on data release earlier today.
All 20 Metropolitan Statistical Areas included in the survey showed declines—reflecting a broad based, non-regional erosion of prices in the housing sector.
But Roubini isn’t yet predicting a double dip recession for the broader economy.
“The rest of the economy is recovering. Most of the numbers are consistent with a growth rate of 2.7 percent,” Roubini said.
But that 2.7 percent growth is still below trend. “So unemployment will likely remain above 9 percent,” according to Roubini’s analysis.
Roubini adds that there are other ominous economic signs on the horizon including: “The eurozone shock, long-term structural deficits, and state and local governments [operating near] bankruptcy.”
And, if homeowners begin walking away from their properties en masse, those negative trends might well pick up steam:
“12 million households are already in negative equity and 8 million more have an LTV btw 95 and 100%. Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home—i.e. jingle mail,” Roubini wrote me in a text message earlier today.
It’s certainly a sobering scenario to contemplate as we head into the New Year.
Personally I don’t see how we return to a traditional market, i.e. something before 2001-2002 until we resolve the delinquencies, foreclosures and massively underwater homeowners. We can certainly muddle along like we have been with a mix of short sales, REO’s and traditional sellers that bought before 2003 (assuming their willing to take something less than peak pricing). Best case scenario for housing is the government comes in with incentives every time we see a dip which allows the market go stay in a pretty tight 5-10% pricing range for as long as it takes to resolve the people that bought from 2004-2008.
Current I think the solution that banks and buyers from 2004-2008 keep hoping for (a rise of home prices back to 2005 levels in the next 3 years) is the lowest probable scenario. We’re much more likely to continue to muddle along until we clear all these homes that need to be resolved. The worst case scenario of another major leg down isn’t all that probable either but it’s slightly more probable than home prices getting back to 2005 levels in the next 3 years.
I’d put the probabilities like this
1) Major rise in home prices over the next 3 years magically solves all of our problems (We create a major technological innovation that gives people wages to afford these houses) – 5%
2) We continue to muddle along in a relatively narrow price band for the next 3 years +/- 10%. Government comes in with incentives at any downturn – 65%
3) We see a major leg down that people were looking for back in 2009 and early 2010 but have given up on lately. The “Foreclosure Tsunami” actually arrives when were no longer looking for it. This would probably be the scenario if the MBS and REMICs investors/pension funds manage to put back the 2004-2006 home loans on the banks. The banks will be quick to liquidate when their effectively insolvent – 30%
“That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months,” Roubini wrote in a text message earlier this morning.
30% fall?
SD did a little better.
San Diego County Detached and Attached Sales:
2009 – 34,523, $226/sf
2010 – 31,631, $242/sf
YOY # of sales were -8%.
2H09 – 18,226, $236/sf
2H10 – 14,903, $241/sf
YOY 2nd Half sales were -18%.
4Q09 – 9,003, $239/sf
4Q10 – 6,734, $240/sf
YOY 4Q sales were -25%
We’ll have a few late-reporters, and there was the tax-credit surge at the end of 2009, so we’re about where we started last year?
Here’s a new REO around the corner from me. Was owned by a guy in the construction biz. Built 2007, 4098 sf, 5 car garage, $613k.
http://www.sdlookup.com/MLS-10007312112795_Vicente_View_Dr_Lakeside_CA_92040
fixed link
http://www.sdlookup.com/MLS-100073121-12795_Vicente_View_Dr_Lakeside_CA_92040
It’s different in san diego. In n. cali there is a substantial amount of shadow inventory.I think every home on my culdesac has had problems.
I think there is a big difference once you get over the grapevine.S. cali has more demand.
The inland empire also has it’s problems.
S. cali will be fine.
600k for lakeside? that seems a little over the top.El cajon, lakeside, santee are basically desert communities with some chapparal brush.I lived in lakeside , el cajon, la mesa as a child.It gets hout out there in the summer.Dont know what is so exciting.
IMHO Roubini’s wrong about the rest of the economy recovering. We’ll know either way in 2011.
Jakob… nice property in Lakeside.
“It’s certainly a sobering scenario to contemplate as we head into the New Year.”
Roubini doesn’t seems to be part of the sobering scenario:)
Look at some of those babes!!!
I’m mostly amused that the mainstream media is now quoting the dude’s *text messages.* What’s next…
When asked how he felt about the state of the economy, Roubini replied: “lolz0rs. we r in 4 a rough ride.”