The new Case-Shiller Index is out and the results are not pretty (h/t: Allison Kemper). Overall, the index is down 16 percent over the past year and more than 20 percent since its peak in 2006. The biggest declines – on the order of a third – are in Phoenix, Las Vegas, and Miami. Little surprise there. But San Diego, Los Angeles, and even San Francisco appear to be hard hit. Washington, D.C. has also registered a significant decline – so much for those who thought its housing sector is insulated by federal spending.
I read this graphic in light of two related issues. First, there remains great intra-metropolitan variation in housing prices and housing price trends. Ex-urban Virginia has been hit much harder than Northwest Washington, D.C. or Bethesda, Maryland, though both of those have also weakened off their peaks. Second, the high-end neighborhoods which had appeared so resilient are now beginning to show weakness and decline. This is particularly true of super-resort locations, for example, high-end waterfront locations in Miami Beach or San Diego – a good friend tells me a record number of properties have recently come for sale on Nantucket. But this trend is now also affecting the highest end super-star locations like Manhattan and Greenwich, CT, as the financial class has gotten clobbered.
And for our Canadian readers, here’s what Shiller has to say on Canada’s real estate market in the Financial Post: (McClean’s ponders “Canada’s Looming Real Estate Crisis.”):
Asked whether that meant Canada could face a similar bust Mr. Shiller said: “Yes, especially in places that went up a lot like Vancouver and Calgary. I don’t think Toronto has been quite as extreme.”
Shiller’s track record is beyond prescient: I sure hope he’s right about my new hometown.
October 2nd, 2008 at 8:08 am
I wish the Canadian media would stop reporting Schiller as an expert on the Canadian housing. I read some of the actual Q&A exchange and Schiller said he knew little about the Canadian market, but thought that the run-up in prices in Calgary and Vancouver could be bubble like. “Could be”
To argue scientifically or intellectually that prices are unsustainable, you need to bring more to the table than simply the fact that houses are more expensive than they used to be.
Looking at the short term future indicators for Toronto area job growth and economic growth (based in part on the challenges in both the manufacturing and finance sectors) I see Toronto as more of a buyers’ market than Calgary or Vancouver over the next 2 years+.
October 2nd, 2008 at 9:43 am
Interesting chart. What the chart underscores is the wisdom of traditional mortgage approaches requiring a 25% downpayment.
First, with the largest price declines concentrated in relatively few regions, bank risk would have been largely contained. At worst, a bank would lose 15 cents on the dollar for mortgages at the top of the cycle instead of 35 cents on a mortgages with zero downpayments.
Second, without the huge expansion of subprime credit, price increases in the regions with the largest drops would have been more modest, and the consequent drops less damaging.
It is indeed unfortunate that we had to re-learn this lesson in this way.
October 3rd, 2008 at 12:22 pm
This morning’s Oregonian had an article about a new high-rise that was being built as condos switching to being apartments, the fourth such announcement lately. The market is following the customers, as usual.
A couple of months ago you (RF) were writing about the need for new housing models besides long-term ownership and lease/rental. I’d guess that the current turmoil presents an opportunity for smart developers to explore ways to fill their buildings.
An example, we’re going to New York for a long weekend in early November. The hotel we stayed in 3 years ago has tripled its rates. We found vacationrentalsbyowner.com, which has New York (and other) apartments for rent by the day or week. We were unsure about staying in someone’s home, but it turns out that people buy condos in order to rent them. This is unusual and maybe driven by the NYC hotel market, but still a change in the models.
October 3rd, 2008 at 5:45 pm
The housing market carnage will be over sooner than later, I suspect. Things will correct, or over correct, and we will be right back where we started. Then the whole process can start over again.
November 27th, 2008 at 10:24 am
Why is anyone surprised that in the US, where mortgage debt is tax deductible and poor lending practices become national policy that they experience a housing collapse? It will correct and life will go on. People have to live somewhere.