Home Prices are busted
The most closely watched indicator of home prices, S&P’s Case-Shiller Home Price Index, fell below its April 2009 low to solidify the case for an official double-dip. For the month ending March 2011, 19 out of the 20 cities in the index saw price declines. Washington D.C. was the only market to eek out a gain on both a monthly (+1.1%) and an annual basis (+4.3%). Minneapolis saw a 10% decline for the year, revealing that the housing crisis is being felt hard in the Midwest. The quarterly annual decline for the index was 5.1%.
Contrary to the continued decline in home prices is the prosperity in Washington, D.C. The government seems to be booming. Unfortunately majority of the US is experiencing rising unemployment and faltering recovery.
Will Interest Rates Save Us?
If the easy money supply was working, we might be seeing more activity in the housing market. Unfortunately easy money and low interest rates need to meet consumer confidence in order for that strategy to work. According to Freddie Mac, the 30-year fixed dropped again to 4.55% from 4.6% for the week ending June 2nd, 2011. A year ago the 30-year fixed stood at 4.79%. The 15-year fixed fell to 3.74% from 3.78% this week. A year ago the 15-year fixed stood at 4.20%.
Interest Rate Chart:
The salvation in the housing market will come down to one factor; supply and demand. The supply of homes is dwindling. While it’s unlikely that you see this, maybe you feel it. Excess supply could be as low as 1.2-1.4 million units, down from 1.8 million at the end of 2010. Home building is on pace to deliver another 350,000 homes this year about 1.25 million short of what is needed to keep up with population growth.
While the system is jammed with tons of foreclosures and short sales, when housing comes back it will be big. For now, we have to deal with the present situation. In the not-so-distant future we will see a housing shortage. The shortage will ripple throughout the US around 2014-2015 when the excess supply is non-existent and real demand for housing (both ownership and rental) returns to the market. Rising rents are the first sign of this shortage.