S&P: July Home Prices Down 16.3% YOY (20-city table), Maybe -10% More From Here

The S&P Case Shiller July 2008 report of existing home sales showed record year-over-year 16.3% price declines averaged across 20 major cities, following last month’s year-over-record of -15.9% (see table below). In July, seven of the 20 cities were up month-to-month compared with nine in June and seven in May. Nevertheless, not one market is showing a positive return over the past 12 months and six of the metro areas are reporting declines in excess of 20.0%, and since the peak of the housing boom in July 2006, the 20-city index has dropped 19.5. percent. Index co-creator Robert Shiller told CNBC last night that there’s a risk of a 10% further decrease in home prices from here according to futures markets.

Case Shiller July 2008 Home Price Index

On a more positive note, in July, index co-creator Case told Barron’s price-to-household-income ratios are returning to more historically normal levels in many bigger markets. Here’s an excerpt from his Barron’s interview:

Case prefers to study the ratio of sale prices to per-capita income in various locales — already has improved affordability. The change in such ratios varies by market, with Florida, Arizona and Nevada typically tracing short boom-and-bust cycles because any surge in speculative demand quickly is followed by overbuilding, due in part to the abundance of cheap land. The ratio in Phoenix, for example, has been reverting to a more typical six times home prices to income, after soaring to nine times in 2005 and ‘06.

Most volatile are popular metro areas, such as Los Angeles and Boston, where housing demand is high, along with restrictions on development. Los Angeles’ affordability ratio doubled from 2001 to 16 times at the height of the housing boom, before dropping back to around 11. The Boston market never grew so frenzied, perhaps because it was far from the center of the subprime-lending business in Southern California, where an array of bad business practices flourished. Boston’s housing-affordability ratio peaked at 12, and since has returned to a more normal nine times prices to income.

The index tracks existing single family homes, and is a highly credible pricing barometer for broad market analysis because it excludes condos and new construction. Condos can have more volatile pricing, and new construction pricing can be artificially set by builders, especially in times of distress when discounts an incentives can skew pricing.

FULL TEXT FROM PRESS RELEASE
New York, September 30, 2008 – Data through July 2008, released today by Standard & Poor’s for its
S&P/Case-Shiller 1 Home Price Indices, the leading measure of U.S. home prices, shows continued
record declines and a continuation in the trend of double digit declines across many cities in the prices of existing single family homes across the United States.

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Home
Price Indices. The indices reached new record annual declines of 17.5% and 16.3%, respectively. The 10-City level marked its 10th consecutive monthly report of a record decline, beginning with data reported for October 2007. As depicted on the chart above, during the 1990-92 cycle the record low was -6.3%.

While the annual returns of the two indices continue to reach record lows, the pace of the decline has
slowed, particularly over the last three months. For the three months of May thru July, home prices
cumulatively fell about 2.2%; whereas for the three months of February thru April, and November 2007
thru January, the cumulative rates of decline were closer to 6.0-6.5%.

“There are signs of a slow down in the rate of decline across the metro areas, but no evidence of a
bottom” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Little positive
news can be found when cities like Las Vegas and Phoenix report annual declines as large as -29.9% and -29.3%, respectively, and all 20 cities are still in negative territory on a year-over-year basis. The Sunbelt continues to be the story, with the seven cities that basically represent that area reporting annual declines roughly between 20 and 30%. While some cities did show some marginal improvement over last month’s data, there is still very little evidence of any particular region experiencing an absolute turnaround.” While there are differences across regions, at the national level the housing market peaked around June/July of 2006. As of July 2008, two years later, the 10-City Composite has fallen by a total of 21.1% and the 20-City Composite is down 19.5%. Las Vegas remains the weakest market, reporting an annual decline of 29.9%, followed by Phoenix and
Miami at -29.3% and -28.2%, respectively. Atlanta, Dallas, Minneapolis and Tampa showed
improvements in their annual and monthly returns, but all four are still too close to their recent lows to
determine if the markets have stabilized. While their annual returns are negative, Atlanta, Boston, Dallas, Denver and Minneapolis all reported positive returns for the three months or more.