Case-Shiller Index Shows More Bad News for US House Prices

In Killen, Texas, you can still get a nice house for US$150,000 – or less. In Paris or London, that kind of money will get you nothing. And housing prices in the United States are going down. That’s what Alan Greenspan said. He told an audience that the housing problem was going to get worse before it got better. And he ought to know; more than anyone else, he caused it!

The latest Case-Shiller numbers tell us that housing is falling nationwide – as reported here yesterday. Guess where prices are falling most? In Tampa, Florida, where they’re going down at a 10% annual rate. Next in line is Detroit, where prices are off 9.3%.

Overall, California leads the nation in house price declines…at a 5.7% statewide rate. The southern part of the state seems to be getting the worst of it; San Diego houses are down 8.3%.

Most likely, Greenspan is right; we’ve haven’t seen the end, nor the worst, of the housing slump. Why? Because there are a lot of houses on offer…and few people with the money to buy them.

“America’s big, fat housing inventory,” is how Business Week describes it. There are 4.4 million houses on the market – a nine-year record. And it is taking three times as long to sell them as it did in 2005. You can do the maths later.

Naturally, mortgage defaults are rising. People get divorced. They wonder who will get to keep the family house. Then, they discover that the house is worth less than they paid for it…and less than they still owe on it…and neither one wants it. “I’m not paying that mortgage,” says one. “You’re not sticking me with that dump,” says the other.

The Fed was getting mixed signals, says Bloomberg . On the one hand, the property situation is clearly bad. On the other hand, exports are rising…the stock market looks healthy…and consumers are still spending. It could have stood pat – but Wall Street wanted a cut. And who knows what financial catastrophes could be hidden in those derivative concoctions? If the Fed did not make a gesture to the financial industry, and something bad happened, it would get the blame. And why not? If the dollar continues to fall…well, isn’t that good for US exporters?

The stock market celebrated with a healthy rise, up 137 points. But remember, dear reader, stocks are going up in Zimbabwe and Iraq too. We’re in a worldwide asset boom that has a clear and obvious cause. The Economist puts the rate of price inflation on “all items” (otherwise known as consumer price inflation) at over 16% per year. But member banks can borrow money from the Fed for less than 5%. Again, you can do the maths later, dear reader.

Of course, as the US emits dollars, the rest of the world’s nations emit their own paper…trying to keep up. What we are seeing in the currency markets is merely relative, but important, degrees of badness. One currency stinks. Another is rotten. A third is crummy. A fourth sucks. They are all going down…but some faster than others.

What they are going down against is the things that don’t come out of printing presses or the imaginations of central bankers. According to the Economist, the average of these things… “all items”…is rising by more than 16% per year, against the dollar. But some things are rising even faster. Oil, for example. And gold.

Yesterday, the Fed spoke. And then, gold answered.

“We will not permit speculators to be crucified on a cross of strong dollars,” said the feds.

“Then, give us gold,” said investors.

Following the Fed’s action gold rose over US$795 before the market closed. Then, the price shot up over US$800 in the aftermarket.

“Falling dollar could push gold to record high,” says the Financial Times. Where have they been?

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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