Warren Buffet's real estate CEO sees the US real estate market bottoming. But here at
Persona Non Grata we consider that statement sales talk. Some sobering numbers are submitted for your consideration. Standard & Poor said its national home price index fell 14.1% in the first quarter compared with a year earlier, the lowest since its inception in 1988. Last week, the Office of Federal Housing Enterprise Oversight said home prices fell 3.1 percent in the first quarter, the largest drop in its 17-year history and only the second quarter of price declines recorded. The National Association of Realtors said its pending sales index set a fresh record low, down about 20% from a year ago and 35% from its peak in April 2005. The current Case-Schiller Index shows home prices declining at a 32% annual rate. At risk is a huge 4.6 million home inventory or nearly double the 2.6 million average inventory for the past 20 years. Even more worrisome is that 2.27 million homes sit empty, and that is besides all the other homes banks own from foreclosures, projected to be 1 in 8 US homes by 2012. 62.3% of lenders of prime mortgages are tightening their credit standards--making it harder to get a new loan or refinance. In the eighteen years the Fed has been tracking home mortgage standards, there was never a reading above 32.7% Similar credit tightening is going on in the commercial real estate arena (78.6% are tightening standards).
If homes keep deflating and hit the dangerous 20% level experts mention, millions will lose their equity. Consumption and credit will be hit, and banks will keep writing-off greater amounts, a development no one wants to contemplate. Robert Shiller believes home prices may equal or exceed the 30% drop of the 1930s. That's $6 trillion in today's dollars, or $80,000 for every US homeowner. The Fed can keep injecting liquidity but only for so long, and
it may not work. If bank losses are great enough, their liquidity demands will overwhelm the central bank and for some it will be a matter of too little, too late. Not a pretty picture, and no way to know how bad things may get. But just so you don't get too gloomy and accuse me of being unpatriotic, here is a pretty picture of a soft landing that actually worked. Way to go, JPL!
