Today we received the latest instalment in the S&P Case Shiller Index. For the month of April, the 10-City Composite posted a new record low of -16.3%, and the 20-City Composite recorded a record low of -15.3%.
No one should be surprised that the cities that experienced the greatest gains in the latest real estate boom were the biggest losers. Las Vegas and Miami share the dubious distinction of being the weakest markets over the past 12 months returning -26.8% and -26.7% respectively. We should recall that these markets had some of the fastest growth in the 2004/2005 period, with annual growth rates of more than 53% and 32%.
Let’s look at the real-life math of these numbers:
If one bought a house in Las Vegas (or another hot area) in 2004 for $700,000, then by 2005 it may have been appraised at an unbelievable $1,071,000 (being up 53% in 12 months). If one had been able to sell the house at that price, it was an awesome profit in a short time.
However many were encouraged by this anomalous experience to increase their mortgage and borrow against this notional market value in order to invest in more properties or pay for other things. Others were enticed to buy properties near the 2005 peak. Others did not sell because they liked their house, or believed that it was a good “long-term' investment. Today the same house might be valued at the 700,000 paid for it in 2004. If you had increased the mortgage anywhere towards the peak notional property value, today you very likely owe more than your house is now worth.
For those that had the misfortune of buying in late to the mania, the house they paid 1 million for a couple of years ago, might be worth $780,000 today. But here is the real problem. The latest report was only to April. We know prices have continued to drop since then. Current trends and over-supply suggest prices will continue to fall for months to come.
I can only imagine the hell people are going through with this. It is not surprising that today’s consumer confidence report for June showed consumer sentiment and expectations at an all time record low.
Cory’s Chart Corner
- Boom-Bust repeat. History calls B.S on "it's different this time", it's always different.
h/t Jessie Felder
about 15 hours ago
- Very impressive...however, given we're a consumption led economy, robots will become just another channel of wealth… https://t.co/OcCREIZbuL
about 18 hours ago
- What determines an inverted yield curve w/QE distortions and a short end at 1.25%...does the 10 yr really have to g… https://t.co/9NEwz1H25x
about 3 days ago
- Boom-Bust repeat. History calls B.S on "it's different this time", it's always different. h/t Jessie Felder
“An explosive critique about the investment industry: provocative and well worth reading.”
“Juggling Dynamite, #1 pick for best new books about money and markets.”
“Park manages to not only explain finances well for the average person, she also manages to entertain and educate, while cutting through the clutter of information she knows every investor faces.”