Saturday, July 11, 2009

WSJ: A double-dip in the Case-Shiller index may be coming

The Wall Street Journal warns that a decline in high-end home prices may cause a double-dip in the S&P/Case-Shiller Home Price Index:
The pace of home price declines tracked by the S&P Case-Shiller home-price index slowed for the third straight month in April. But the bloodletting may not be over.

Here’s why: If price declines accelerate for the mid-to-upper end of the housing market, then that could generate enough large declines in values—even among a small segment of the overall housing market—to push the index lower still.

Prices at the mid-to-high end are falling as job loss and the worsening economy have iced demand for higher-priced “move-up” homes. Also, tougher financing conditions have made it harder to get mortgages for “jumbo” loans on more expensive homes, and delinquencies are rising among jumbo borrowers, which could lead to an even greater oversupply of homes.

Independent housing analyst Ivy Zelman notes that such a “double dip” in the index in the second half of 2009 could materialize because the Case-Shiller index is value-weighted, which means that repeat sales of higher priced homes figure have an outsized impact. ...

So far, prices have fallen from their 2006 peak by 33% at the middle of the market, compared to 44% at the low end and 27% at the high end, according to Ms. Zelman.


  1. scary scary stuff. a buddy of mine went into foreclosure, there was a short sale, and when it came time to settle on the short sale, the buyer came up short of funds. this high-end stuff drilling the market makes a lot of sense.


    tonight we're gonna party like it's 1999

  3. "tonight we're gonna party like it's 1999"

    No, in 2012 we are going to party like its 1999. Its gunna be a while before prices bottom out.

  4. Yeah, I have seen this coming for a while now. It aint gonna be pretty.

  5. This jibes with what I'm observing. At the lower end of the housing market there were some good deals to be had this Spring. In the mid-to-upper end there is a long way to go before homes are at affordable prices in the DC Metro area.

    The artificially low interest rates, tax credits, foreclosure moratoriums, cheery spin put on housing statistics, and excitement at the low end of the market generated some sales in the mid-to-upper end this Spring...but that seemed to run out of steam about a month ago from my vantage point.

    I think there is a reasonable chance that we'll see another 15-20% decline in the upper brackets, which will compress prices down the line. It's not certain, and it's only an opinion, but there's still way too much downside risk for my conservative blood.

  6. The banks are holding onto so many Mcmansions and are facing taxes and maintenance on them now.
    Hopefully one large bank will set off a stampede of selling.