US Home Values Down 26% From June 2006 Peak
According to a recent blog posting on Zillow.com (link below), home values in the United States have now fallen more since June of 2006 than the Great Depression-era years of between 1928 and 1933.
According to Zillow.com and their Zillow Home Value Index, US home values have dropped 26% since hitting a peak in June of 2006. This compares to a 25.9% decline in the Great Depression-era years between 1928 and 1933.
Between 1997 and 2006, the price of the average US home increased by 124%. The bulk of this move was made in the years after 9/11, due to the fact that interest rates were dramatically lowered in order to protect the country from a lengthy recession. This resulted in a frothy real estate market that started to spin out of control due to the dramatic increase in subprime mortgages. Home ownership became a national obsession (replacing the obsession with the stock market in 1999/2000), and home values in the country quickly spiraled out of control. Practically everybody who wanted a mortgage was given one, regardless of whether or not they had the means to pay for it. As long as the real estate market was headed higher in the country, it was all good. Low teaser rates were used in order to get people into their homes, with most lenders choosing to follow a "quantity over quality" mantra that eventually doomed the US real estate market.
After the US real estate market peaked in mid-2006, major cracks started to appear in the foundation of the housing market. Homeowners were suddenly unable to refinance, due to the fact that their homes were quickly dropping in value. Adjustable-rate mortgages (ARMs) began to reset at higher prices, which many people simply couldn't afford. Purchases of mortgage-backed securities plummeted. Credit markets tightened.
Many people who couldn't afford their homes walked away and gave their keys back to the bank. Many people who could afford their homes also chose to walk away, due to the fact that they were suddenly underwater on their mortgages and likely never to recover. Foreclosures spiked throughout the country, with states such as Nevada, Florida and California being especially hard-hit. The gains made in the housing market in the post 9/11 era were quickly evaporated as banks were forced to take on more and more inventory and would-be buyers were either unable or unwilling to step in and buy.
Fast forward to November of 2010. According to Zillow, home values in the country have declined for 53 straight months. In November of 2010, the Zillow Home Value Index fell 0.8% from October to November, and 5.1% YoY (Year-Over-Year).
The US housing market faces numerous challenges going forward, despite the fact that the economy is finally starting to show some signs of life. According to Ben Bernanke, the US labor markets will take 4-5 years to "normalize", meaning that we are likely looking at a continued high national unemployment rate for the near-term. In addition, high foreclosure rates will make sure that there is more supply than demand for the foreseeable future as well.
In closing, the current housing downturn will likely continue to distance itself from the Great Depression-era downturn over the coming months and years.
Source: Zillow.com - Home Value Declines Surpass Those of Great Depression
Filed under: Real Estate News