Today’s Case Shiller report for November 2008 showed a 18.2% decline y/o/y for the 20 city Home Price Index. This is the biggest decline in this cycle, and is now down 25% from its price highs of July ’06.

In contrast to the FHFA (formerly OFHEO) home price index, Case Shiller is a 20 city composite index that includes housing at all price levels, including jumbo’s but also foreclosures and distressed properties.

David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s said:

“The freefall in residential real estate continued through November 2008. Since August 2006, the 10-City and 20-City Composites have declined every month – a total of 28 consecutive months. Every region was down in excess of 1% for the November/October period, with eight of the regions recording record monthly declines. Phoenix and Las Vegas were the worst performers for the month at -3.4% and -3.3%, respectively, and also have the lowest returns over the one-year period, returning -32.9% and -31.6% respectively. Overall, more than half of the metro areas had record annual declines.”

Case Shiller Home Price Index:

via S&P


Home Price Declines Continue as the S&P/Case-Shiller Home Prices Indices Set New Record Annual Declines
New York, January 27, 2009,0,0,0,0,0,0,0,0,2,1,0,0,0,0,0.html

Category: Data Analysis, Markets, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “Residential Real Estate Price Freefall”

  1. Bruce N Tennessee says:

    Yesterday’s existing home sales…the thing that wasn’t mentioned much was the decrease in price in one month from 180k to 175k…this seems the more important aspect..that prices are still falling..and if you own a home…your abode is still deleveraging…

  2. constantnormal says:

    The chart bears consideration, as it does not show absolute levels of housing prices, but only the year-over-year rates of change. If you imagine the changes in absolute prices, taking into account the compounding of year-over-year changes …

    Wow. Look at all the little people down there — from this high up, they look like ants.

    WAITAMINUTE! They’re getting BIGGER!

  3. ottnott says:

    The headlines on housing price/volume data are going to be misleading for some time.

    Right now, foreclosures at the lower end of the market dominate, and the banks have finally realized that they can’t hold out for an above-market price. As a result, we see sales numbers picking up and prices dropping fast.

    In my area (San Diego), many of the heavy foreclosure areas are hitting the point where investors are coming in and buying units either for rental or for quick repair and resale. Those areas will see some price stability unless unemployment shoots through the roof and knocks rental rates down.

    Some of the foreclosure areas remain disasters – typically downtown condo buildings that or new developments that didn’t get fully built or fully sold. With partial occupancy, the association fees aren’t enough to maintain the building or development.

    At some point, I expect to see headline prices levelling out or even rising, but with falling sales volume. Behind the headlines, prices will be falling in the move-up neighborhoods.

  4. Mannwich says:

    Don’t worry, Bruce. It’s all “baked in”.

  5. Mannwich says:

    On another note: Madoff-schemer Art Nadel has been caught. Clear out Guantanamo and make room for Madoff, Nadel, Thain, Lewis, etc.

  6. Bruce N Tennessee says:


    I know…and I get chewed for being politically neutral, and having low expectations, when all I want is some good ideas on how to make money here…

    Mish’s site today has some scary numbers about how much of Britain’s economy is now dependent on the state…if we nationalize the banks, who knows….?

    by the way here is the link to yesterday’s housing price…10 am…

  7. Mannwich says:

    Saw that Bruce (Mish’s site now in my regular rotation). You and I (and your wife) called this a few months ago – GD II is coming. I supported and voted for O but Jesus Christ Superstar could be President and not save us from this inevitable fact. This mess was a long time in the making with MANY architects. Time to take our lumps. The question is will the monied elite completely destroy our country in the process of trying to save themselves?

  8. rob says:

    And here’s another money shot!………………….. “The downgrade was triggered by continued deterioration in SunTrust’s asset quality. Until fourth-quarter 2008, asset quality problems had been largely contained to home equity and Alt-A loans with high loan-to-value ratios, but are now beginning to spread to SunTrust’s large portfolio of first mortgage loans on residential properties,” said Standard & Poor’s credit analyst Charles Rauch. In addition, the portfolio of loans to regional home builders is weakening.

  9. Mannwich says:

    Just had to mute Larry again. Not good times.

  10. cjcpa says:

    I (think I) understand that Case-Shiller uses the same-house-sale methodology.
    I wonder is this is not skewed towards showing a greater decline because of the sample…?

    Meaning – If the house sales that make up the data are those that have sold recently….
    I have a vague feeling that those that sold a lot in 2005 2006, and then sold again….. are in the more bubbly areas of the country. I believe the ‘flatlands’ were described as having less turnover, less froth, and less decline.
    Also, not shown in either the 10 or 20 city composite. This may be a question for a CalcRisk blog, but…

    but, can anyone state that the use of same-sales does not over-represent high turnover areas?

    (I know that only houses that sell actually generate a data point that we can use)

  11. phb says:

    @ Mannwich…why do you subject yourself to the pain of Larry’s foolishness? Goldylocks, ha!

    Where is the bottom of this graph? I have cash, want to buy, but am having a hard time picking an entry point. Please no blah blah blah about how a house is not an investment, buy it to live in, you are the cause of all evil stuff, I am all about household cash flow. Lower price + lowered mortgage rate = increased HH cash flow. Thoughts anyone?

  12. Mannwich says:

    @phb: I just have CNBC on in the background in my office. I usually have the volume very low and mute it from time to time when I get truly irritated (which is very often lately).

  13. constantnormal says:

    @ cjcpa — not disputing anything you have said, but wanting to churn this around a bit …

    Suppose a person lives in the boonies, with not much of a market demand for his home. Does this mean that it is not falling in value, because nobody offers him a price for it?

    There’s a whole world of stuff to mull around in the area of illiquid assets — just ask any banker with a ton of the Tier 3 junque on his books. Prolly better for businesses to never acquire assets that don’t have liquid markets, no matter WHAT the instantaneous returns/yields on such assets might be. Odds are, those returns will evaporate just a quickly as they sprang into being.

    This is most likely the repositioning of the greater marketability that Milken, et al, gave to sub-prime or junk assets a long time ago. While having no market whatsoever for such things was a waste of capital, treating them as if they were ordinary assets like anything else is an unacceptable assumption of risk.

    Maybe those frequently-traded houses have a certain aspect, in that the risk of illiquid markets is lower with them, that the rest of the housing market does not share. Yes, they might well have been bid up ‘way too high, but at least their pricing data is a lot more trustworthy than is the pricing data for homes in areas that haven’t had many sales …

    Just thinkin’ out loud … a lot of this carries over into other areas of investment as well. Caution is advised when trading in thin markets, as the ice can give way at any moment.

  14. constantnormal says:

    @pbb — where is the bottom?

    On this graph, the bottom may have been reached — or not — but that DOES NOT MATTER if you are looking to buy, because the real question is when are housing prices going to bottom, not the year-over-year rates of change.

    Assume for a moment that this IS the bottom in year-over-year changes, and that they gradually move upward, with lesser declines, kinda mirroring their rise from 1996-2006. Would you want to buy, knowing that your purchase was going to decline in value every year for the next decade?

    Of course, this only applies to optional purchases. Everybody has to live somewhere. But for the foreseeable future, renting is advised over buying, unless you find the house of your dreams and price is irrelevant.

  15. bitplayer says:

    jeezo, this chart doesn’t jibe with the real estate section of the palo alto daily news. shacks purchased in menlo park in july 2006 for seven figures are currently worth…seven figures. no doubt because tech is immune?

  16. phb says:

    @ constantnormal – I hear you, thats how I find myself at this point renting homes. Here’s the rub though…the people I rent from stopped making payments to the mortgage company. I have about 5 to 6 months (give or take) before the sheriff knocks on the door suggesting that I vacate. Started looking around and guess what, no homes available to rent! If they are available, it typically is an over-levered homeowner desperate for help charging too much in rent to cover their mess!

  17. constantnormal says:

    @bitplayer — move around just a few miles and check your readings. Even the sticky points will loosen up if the price differential to surrounding areas is steep enough. We have a decade of declining home prices ahead of us.

    The likelihood of ginormous tax hikes, declining job markets, and an increase in fires and mudslides will serve to make even Menlo Park subject to price pressure as this wave rolls on. While it may have crested (or not), this wave of declining home prices is far from over.

    The tech layoffs have just begun. Wait six months or so, and see if there isn’t some downward pressure on housing prices in the Menlo Park area, as tech millionaires are wiped out in droves.

  18. constantnormal says:

    @bitplayer — oops — I missed the humor in your post. Pardon my stuffiness.

  19. constantnormal says:

    @pbb — hmmm … that’s an aspect I had not considered. Ever thought about buying a used motor home and living in a Wal-Mart parking lot?

  20. constantnormal says:

    @pbb — on a more practical basis, start watching the sheriff’s auctions of foreclosed properties. You may be able to pick up a house on the cheap, sufficiently cheap enough that it will not matter if you have a few years of losses, and 20 years from now it will be turning a profit, in whatever currency we are using by then (maybe bottle caps).

    Buy as little as you can get by with, in a neighborhood that is not likely to become a neighborhood of crack houses and meth labs.

    I had not considered the effect on rental housing, what with the millions of dispossessed homeowners having to find places to live, and the slowdown/cessation in commercial property (apartments) lending/construction. It makes sense that rental housing will become increasingly hard to find. Perhaps approaching the property owner (bank) and asking to rent from them at the same monthly payments would prove fruitful, as the property would hold its value a lot better if it were occupied. It should not matter to you who actually owns the house you’re renting.

    Good Luck.

  21. DiggidyDan says:

    as constant normal pointed out, this graph represents a rate of change, therefore house prices bottom when the line recrosses the zero point, which means that we got a ways to go. Graphs of rates of change are like integral calculus in that the absolute value would be represented by the area under the curve. This suggests we are currently at oh, i don’t know ’03-04 levels and won’t get to the bottom until 200 levels in my opinion (where the bottom of the under zero jagged triangle has an area under the curve equal to the area under the curve of 2002-2007)

  22. call me ahab says:

    It does not really matter how far they have dropped from the top of the market because everything was overbought. For instance if house prices tripled in 10 years so that between 1997 and 2007 a home went from $200,000 to $600,000 then that would equate to appreciation of 11.6123% on a yearly basis. If the historical norm is 3% annual appreciation then the home price would be $268,783 in 10 years. So if the current home price is a 35% reduction from the top of the market that would mean a SP of $390,000 and I am not necessarily sure that means you are getting a good deal. In my mind we are still $121,217 ($390,000 – $268,783) away from the historical norm. Just my two cents worth.

  23. DL says:

    Peter Schiller wants the government to go even deeper into debt than what Obama is proposing:

  24. DL says:

    Robert Schiller, not Peter

  25. bitplayer says:

    thanks, constant normal. received wisdom states that google money drives local housing prices. so with GOOG cut in half, one would expect at least a fillip in housing (ex-subprime). not necessarily a nosedive, but a healthy correction, to show that the head is still connected to the body. well, it’s not. scary stuff.

  26. cjcpa says:

    Reading all of the above… it is really my point that Montgomery County, PA is not on the list of cities in the 10 and 20 indexes and homes do not appear to be following those trend lines here.

    For instance, 420k list sells after 6 months for 395k. Down, but around 5%.

    For various personal reasons including ‘birth’ I am looking to buy a family home and hope to catch the confluence of falling prices and low interest rates before high interest rates return.

    I just question the applicability of the national graph to my town. Possible answers are:
    1- your town is different
    2- it will happen to your town soon.

    As you can see, 1 or 2 makes a big difference in what I should do.

    My market prediction is that 10 years from now, summer 09 will not look like a bad time to buy a house or stocks – when plotted like the above. Not the best, and not the bottom. but not the top either. I am afraid of inflation showing up prior to my purchase of the family home. As long as I beat that and get a low rate, I’m okay with additional years of slight price erosion.

    And, as above, we haven’t had any big price erosion yet. 5-10% from peak.
    I’ll post again in a few months, see if I was right.

  27. batmando says:

    cjcpa @ 3:27

    Consider negotiating a lease-to-buy option to give you extended time to monitor the market, locking in a price on a home you choose now (or during Summer ’09) yet having an out if prices really do nosedive in your area over the next year.

  28. call me ahab says:

    @ cjcpa

    the price drops have ocurred for the most part in previously heated housing markets that saw several years of double digit appreciation fueled by rampant specualtion. Does that sound like Montgomery County PA? I do not know your market so only you can answer that question. If appreciation for your area was low to moderate and home prices aren’t too different from several years ago than you may be ok.

  29. ndmaster says:


    If you like the house you are now renting from deadbeat homeowners, why not see if you can buy your current home from the bank?

  30. stevevan says:

    reply to cjcpa.

    Any real estate indexes aren’t perfectly as each house is obviously different so comparing sales prices isn’t very accurate. With the Case Shiller index as you say it’s based on repeat sales (of houses with no major discernable quality changes) within a particular city/region so it’s the best index I know about.

    They start by getting an index for each city/region then they average them out to get the composite indexes we see in the graph above (not weighting them for the number of house sales in each region so not distorting them in the way cjcpa was asking about.) You’re probably talking about an random error of up to couple of percent in each cities index (greater errors where there are less sales e.g. in smaller cities with less active housing markets) however if these errors are random they should pretty well cancel out on the composite indexes.

    I spent 5 years writing a thesis on speculative forces in residential housing markets. Needless to say there are a lot of misconceptions put out by the mainstream media. I’ll blog on it today at .

  31. russell1200 says:

    I believe in absolute terms the index is at 2004 prices: I followed one of the links at CR and read the whole report. That is not good, but it sounds better then the chart looks.

  32. Jim C says:

    Constant normal, the thing about this type of graph is that changes in the graph’s slope from negative to positive or the other way aren’t gradual. If you will look at the graph, you’ll see that slow changes basically dont happen. You get sharp changes. So, when it flips, it will flip quickly…and given that the data is basically 60 – 90 days out of date when you get it, by the time that chart flips, the change will already be significantly underway.

    If the graph was today’s price, it would be more significant, but given that it is November’s Data and we are less than a week from February, the value of the data is less.

  33. dilbert dogbert says:

    bitplayer Says:+
    January 27th, 2009 at 11:59 am

    jeezo, this chart doesn’t jibe with the real estate section of the palo alto daily news. shacks purchased in menlo park in july 2006 for seven figures are currently worth…seven figures. no doubt because tech is immune?

    Maybe it is just that PA and Menlo are just stronger and faster Wiley Coyotes that will eventually look down.
    We just sold in PA in Nov. I think we could have got maybe 200 to 300K more if we had sold in the spring. That’s the breaks. Even so, two days on market and full asking with no contingencies is not too bad.
    We sold for reasons that no one on this blog would be interested in but that left us with less proceeds than required to downsize in the area.
    We just made an offer on a house at 50% below its peak asking. Short sale. It will be interesting to see how the seller and bank respond.
    We would prefer that WC look down sooner than later as we would really rather live near or around PA than where we made the offer.

  34. ottovbvs says:

    The Case Schiller index is the gold standard but the composite number is meaningless except as a source of headlines at the NYT or NBC evening news. The spreads between the disaster areas like LV and LA, and the less affected like Seattle or even the North East, are enormous. I live in a fairly high end coastal area in the NE and the best estimate here is that prices have fallen by 10-15% from the peaks which is not good but hardly puts us in the category of Miami. Furthermore there is evidence they are bottoming although this could shift if job losses are not contained. It’s a hot topic at the moment on which everyone is well informed with lots of data kicking around because the town has just done it’s five year revaluation. Nationally I’m expecting the housing market to bottom in the first six months of this year.

  35. Al Bergette says:

    I completly concur with ahab’s 1:19pm post.

    In lieu of the false primers that ignited the historical run up in home prices: low interest rates, ninja loans, flippers, pick your pay loans and greed, it is pretty gullible to think home prices have reached relalistic valuation corrections in light of historic annual rates of growth in relation to peoples income, most especially this soon after the market peaked and in light of so many vested interests doing everything possible to stifle market/economic forces and the downward correction in home values.

    Fact is, the market has been so inflated and abused values might have a long, long way down to go.

    One thing I am pretty confident of is we aren’t going to see the bottom for a couple of more years.

    I think we will know we are at the bottom when this country returns to manufacturing things again.