Record Drop in Home
Prices
Home prices in the U.S. fell by a record amount in the second
quarter, according to a report by S&P/Case-Shiller.
The S&P/Case-Shiller index — named for Wellesley College
economics professor Karl Case and Robert Shiller, chief economist at
MacroMarkets LLC and a professor at Yale University — showed
home values dropping 3.2 percent in the second quarter compared to a
year earlier.
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"The pullback in the U.S. residential real estate market is
showing no signs of slowing down,'' said Shiller in a statement.
Financial Intelligence Report readers will recall our exclusive
interview with Robert Shiller in April 2006 when he warned that
housing prices could fall as much as 40 percent in the next few
years.
And earlier this year, Shiller again warned that the worst of the
housing crash hadn't yet arrived. Go
here now to find out Shiller's advice for protecting
yourself from the housing crash.
Clearly, the subprime bust and the subsequent credit crunch that
is preventing prospective homebuyers from getting a mortgage are
exacerbating the housing slump.
"Given the tightening in underwriting standards and the credit
freeze, it's going to be very difficult for buyers to purchase
homes," Mark Zandi, chief economist for Moody's Economy.com, told
Bloomberg.
Sellers were already slashing prices in order to attract an ever
smaller pool of buyers. Without relaxed credit standards —
which is what created the housing bubble in the first place —
sales and prices will probably spiral downward for the foreseeable
future.
In fact, Merrill Lynch cut its rating from "buy" to "neutral" on
Bear Stearns, Lehman Brothers, and Citigroup due to their exposure
to mortgage bonds and leveraged loans. Bear Stearns recently bailed
out two of its hedge funds because of losses on mortgage-backed
securities, and Lehman Brothers just became the first Wall Street
firm to shutter its mortgage-lending arm.
A recent issue of FIR predicted the liquidity crunch that is now
underway in the housing market. Go
here now to get the 12 ways to protect your investments
from the liquidity crisis.
Even the Fed is beginning to acknowledge that the housing slump
isn't over.
"Recent data on actual housing market activity have dampened my
optimism" of a bottom in the housing market, commented Richmond Fed
President Jeffrey Lacker. He also acknowledged that tighter credit
conditions "could further dampen residential investment."
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