2010 October 24 Sunday
Housing Prices Turn Down Again

A graph at this link shows housing prices bottomed sometime in early 2009 and recovered some since that time. Now housing prices have turned down again but they are still above the early 2009 low.

TRUCKEE, Calif. – Oct. 22, 2010 – Clear Capital (www.clearcapital.com), is issuing this special alert on a dramatic change observed in U.S. home prices.

“Clear Capital’s latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”

A 5.9% drop in 2 months is a very sharp decline.

This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.

Calculated Risk expects the CoreLogic and Case-Shiller housing price indexes to also show declines. This makes sense. Housing prices are still too high. Plenty more mortgages are going to default any potential buyers are afraid to buy and then see prices drop. The expectation of always rising housing prices is dead.

The economic conditions are ugly. A recent Gallup poll found the unemployment rate back above 10% for September and industrial production unexpectedly fell in September.

Historically, recoveries from recessions have been very strong with GDP growth running well above the historical average. This makes sense intuitively. The economy has to grow at an above-average rate some of the time to make up for periods of declining and stagnant economic activity. But the National Association of Business Economists projects only an average economic growth rate in 2011 with unemployment at 9.2% at the end of 2011.

The NABE Outlook panel cut its growth predictions for 2010 and 2011. Real gross domestic product (GDP) is now expected to advance 2.6 percent in 2010, down from the panel’s May prediction of 3.2 percent. While some of this reduction relates to historical data revisions, most of the markdown reflects worse-than-expected summer results and a dimmed outlook. Next year’s 2.6 percent gain shows the lack of a typical cyclical rebound and only matches the long-term growth trend previously expected by the NABE panel.

What I'd like to see: a measure of recessions by percentage unemployed per month above a baseline over some months. Translate the recession's total labor lost into cumulative percent of a year's total labor. So, for example, an extra 5% unemployed over 2 years is 10% of a year's labor. By that measure this recession would likely stand far beyond any other recession since WWII in terms of labor lost.

Even this projection might turn out to be excessively optimistic. We might be in the early stage of an extended period of low economic growth. Worse yet, oil price surges will at various points in the next 10 years choke off all economic growth. Once world oil production comes off its production plateau and enters permanent decline I expect a long period of economic contraction year after year.

I see lingering effects of the real estate bubble, the financial crisis, the coming oil production decline, globalization, and worsening demographic conditions in America (and other Western nations as well) all combining to make the next 10-20 years economically worse than the 1990s. The last 10 years will come to be seen as the transition period from the previous era of long term economic growth to a new era of austerity and declining living standards.

Share |      By Randall Parker at 2010 October 24 11:37 AM  Economics Housing


Comments
tanabear said at October 24, 2010 9:12 PM:

The last major economic downturn occurred in the early 1980's(1981-1982) when unemployment went over 11% and inflation was running as high as 10%. This severe economic downturn was matched by years of robust economic growth. Like a rubber band, the further you pull it back the faster it will spring forward. The recession cost the Republicans 27 House seats in the mid-term elections(1982) and gave a black eye to Ronald Reagan's Economic Recovery Tax Act(ERTA). However, the economy started growing again in 1983 and in 1984 the economy grew by 6.8 percent, the highest growth in a generation. This economic growth propelled Reagan to a 49 state victory.

Will Obama's stimulus usher in as much growth and prosperity?

Randall Parker said at October 24, 2010 10:16 PM:

tanabear,

After peaking in 1980 the price of oil dropped in the early to mid 1980s. Costs of a major input plummeted. This time the price of oil is staying near $80 and I expect it to go up into triple digits in 2011 or 2012. That makes economic growth much harder.

Volcker was squeezing inflation out of the economy in the early 1980s. So recessions happened as he squeezed. Now there's no inflation. Yet the Fed can't get the economy growing much. This is consistent with the aftermath of financial crises. Kenneth Rogoff, Carmen Reinhart, and Vincent Reinhart have shown this with their research on financial crises in many countries going back over centuries.

The fundamentals are different this time.

kurt9 said at October 25, 2010 9:40 AM:

Peak oil is not a new concept. The peak oil concept was heavily bandied about during the 1970s. I see no reason to believe the current predictions of peak oil to be any more correct than those of the 1970's.

tanabear said at October 25, 2010 4:57 PM:

Yes, I agree that it could be different this time. If the economy doesn't recover in a robust way then there could really be some rough waters ahead. During the previous decade private sector job creation was pretty much nil and this was before the huge spike in unemployment that occurred in 2008, 2009. The insanity of having hordes of legal and illegal immigrants flood into our country with no net job growth can't be overstated. Japan didn't have this problem when their economy stagnated in the 1990's, but we do. If Morning in America doesn't come again then our politics is bound to get more ugly and brutal.

Engineer-Poet said at October 25, 2010 5:02 PM:

What was wrong, kurt9?  Was Hubbert wrong about the USA's crude production peaking in 1970?

"Just as wrong" is a great place to be.

California kid said at October 26, 2010 11:33 AM:

Housing is about the only thing that gets domestic growth going in an off-shored economy. This is what caused the subprime mess. They ran out of legitimate buyers, so to keep the economy going they made everybody into a buyer by faking the docs.

So how will they (Pubbies) get the economy going ? Mass immigration, again.
I think it likely. Put the immigrants into houses, maybe with Federal "grants" or "mortgage assistance" payments. Something other than faked docs this time.

Randall Parker said at October 27, 2010 6:56 PM:

California kid,

Immigration does not raise the per capita GDP of those already here. So mass immigration won't help one's personal economy.

An off-shored economy has an even lower need for immigrants.

Here's the place to watch how we progress or regress each year: a site where you can get historical yearly inflation-adjusted per capita GDP in the United States. I predict a break from the progress of the post-WWII general trend. The US will either go flat or experience an extended period of declining per capita GDP. Given demographic trends (aging and dumbing), the approach of Peak Oil, and the decline of family structures I think declining per capita GDP is hard to avoid. I expect The Impending World Energy Mess alone to cause a big decline in living standards.


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