The S&P Case–Shiller index showed a decline in housing prices of 2 percent on a month of month basis annualized. The average price of home for the 20 markets followed by the index peaked back in July of last year. However, the real story is an examination of the individual housing sectors. Actually, the largest decline has been in the Detroit area with a decrease of just over 9 percent. This has never been the focus of discussion on a housing bubble. Some markets like Seattle and Charlotte are actually up over last year by healthy margins of 9.5% and 7%. The only markets down for the last two years are Boston, Cleveland, Detroit, and San Diego and all of those are single digits.
We are not making light of the housing problem, but for those who purchased their homes more than two years ago, the gains to date are still significant. The Miami market which has been discussed as an area that is being hit hard is up over 23% for the last two years and over 55% for the last three years. To date, the housing problem is not one declining prices but one of significant slowing of price momentum. The recent buyer is at risk or the buyer who was anticipating significant short-term gains.
Now, we may only be at the beginning of the down cycle, but given that housing is usually thought of as a long-term investment, the declines to date are modest. The greatest issue may be liquidity and perceptions. Many cannot sell their houses today at the prices they expect from extrapolating the gains over the last few years. The market has not adjusted to a new reality.
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