Home Prices Keep Falling

Today’s news is brief but pretty bad, house prices are continuing their sharp fall all across the country. Here’s the announcement of the Case-Schiller index from MarketWatch:
Home prices off record 18% in past year, Case-Shiller says – MarketWatch

None of this is really unexpected. The housing bubble was insanely inflated and has not yet fully imploded. Even with the declines registered already I think prices still have a way to go before they return to reasonable levels. This is especially true when the ratio of rents to house prices or the ratio of incomes to house prices is considered. Affordability remains an issue. House prices cannot settle until people can comfortably afford to finance a mortgage. Furthermore the days of low down payments etc are over, so buyers are having to produce more traditional down payments which means less innovative financing is around to soften the drop in prices. There are fewer truly qualified buyers for a housing inventory that is heavily inflated by the surplus we developed during the bubble.

Until the inventory of unsold homes is reduced significantly house prices will be under downward pressure. The analyst in the article who attributes the downward pressure on prices to foreclosures is missing the larger point. Yes foreclosures push prices down because forced sales affect the values of homes in the same locale. But affordability and surplus inventories have a more pervasive and lasting effect.

Overall: home prices will continue to fall well into 2009.