Declines Continued in First Half
Data through June 2008, released by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, shows continued broad based declines in the prices of existing single family homes across the United States, a trend that prevailed throughout 2007 and has continued through the first half of 2008.
The decline in the S&P/Case-Shiller U.S. National Home Price Index — which covers all nine U.S. census divisions — remained in double digits, recording a record 15.4 percent decline in the second quarter of 2008 vs. the second quarter of 2007. This is larger than the decline of 14.2 percent reported in the first quarter of the year. The 10-City and 20-City composites also set new records, with annual declines of 17.0 percent and 15.9 percent, respectively. However, it should be noted that the acceleration in decline was only moderate in June. The May numbers reported annual declines of 16.9 percent and 15.8 percent, respectively.
“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level,” says David M. Blitzer, chairman of the Index Committee at Standard & Poor’s.
GE Money and CertainTeed Offer New Program
GE Money announced a multiyear agreement with CertainTeed, a manufacturer of interior and exterior building products, to provide consumer financing through select contractors nationwide. The program was created in response to both CertainTeed-credentialed contractors and homeowners who have requested unsecured loan options to finance home improvement projects.
The program includes revolving credit terms and an installment loan financing option. Both options will be offered by participating contractors that have earned CertainTeed Roofing and Siding product knowledge and installation credentials.
Impact on Home Prices Not Expected to be Extreme
Rising foreclosures will not cause U.S. home values to plunge, despite widespread concerns to the contrary. That’s the conclusion of a new study, The Foreclosure-House Price Nexus: Lessons from the 2007-2008 Housing Turmoil (forthcoming as a National Bureau of Economic Research (NBER) Working Paper).
Although the authors recognize that other factors not captured by their analysis could weigh on home prices, the effects of foreclosure shocks seem to be smaller than many have feared. Even under their most extreme scenario, in which foreclosure rates would substantially exceed current forecasts, the resulting average drop in home prices between the national peak in the second quarter of 2007 and the fourth quarter of 2009 would be less than 6 percent.
The authors emphasize that house-price declines vary across states and argue that headlines pointing to extreme circumstances in a few states can be misleading about the United States as a whole. Despite increased foreclosure rates throughout the country, only 12 states are projected to see foreclosure-induced price declines of 6 percent or more through 2009, led by Nevada, Florida, California and Arizona. “This suggests that home prices are quite sticky, and that fears of a major fall in house prices, with all of its attendant negative macroeconomic consequences, typically are not warranted even in extreme foreclosure circumstances,” they write.
Part of the reason that foreclosure shocks have small effects on house prices is that these shocks tend to occur late in the housing cycle, after housing starts have declined and the supply of existing homes on the market has fallen sharply. These effects largely offset the price consequences of a supply surge caused by foreclosures.