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House prices will continue to fall – just as we are amazed when house prices keep rising in a boom so we should expect an overshoot before any confidence returns . The Fed has the ability e.g QE 2 to push up financial prices but given few own financial assets directly the impact of this will be relatively small compared to declining house prices. Private individuals will cut their leverage and consumption for years ahead. In many debt areas the impact of negligible interest rates has kicked the can down the road and deferred the problem but little has really been solved. In 2008 most expressed confidence that US decision takers were more dynamic than Japanese so the impact of a property bubble bursting would be completely different. Increasingly, we can see that the only real variable we can control is the speed of decline.
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[...] S&P’s HousingViews [...]
Double-dip in home prices
The much feared double-dip in home prices has materialized nationally. Data through March 2011 show that the National Index hit a new recession low with the first quarter’s data (the prior low was the first quarter 0f 2009, and we define this as the “double-dip”). The S&P/Case-Shiller U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. Nationally, home prices are back to their mid-2002 levels. This means that any run-up in home prices between 2002 and the 2006 peak has been erased. On average home prices are selling at the same value they were nine years ago and are 34% below their 2006Q2 peak.
S&P/Case-Shiller US National Home Price Index, index level and annual rate