Home prices drop by record rate
More bad news came for the real estate market on Tuesday (January 27) as President Obama visited with leaders in the GOP to discuss details of his new economic stimulus plan. According to the national Case-Shiller home index that monitors home price movement in 20 of the largest US metropolitan markets, the annual price drop during November was 18.2 per cent from last yearâ€™s November. This marks the largest annual rate drop in any month since the index started.
The narrower 10-city index, which has been in existence for 21 years, saw Novemberâ€™s annual rate drop by 19.1 per cent, tied with October for its worst ever decline. Even more troubling, homes in the 20-city index have lost one-fourth of their total value since the July 2006 reading.
While the time is not right to enter the real estate market as a seller, many first time and bargain-hunting home buyers have started to enter the market. According to the National Association of Realtors (NAR), the median home price in December was $175,400. This is down sharply from the $207,000 median price tag in December 2007. The combination of record low mortgage rates and hugely discount prices contributed to a surprisingly strong increase in existing home sales for December. The NAR has its own home affordability index that showed its best reading since 1993, during November.
In many of the more sluggish home markets in the US, people with jobs that at one time did not pay well enough to afford some homes, are now finding great deals. The low interest rates and steeply discounted home prices are creating attractive monthly payment opportunities. Some renters in traditionally expensive metros are now beginning to see the benefit of getting a home and building equity, given the affordable monthly mortgage payment opportunities.
Despite the potential for great home deals, many Americans still are not looking to buy because of broad concern about the economy and a growing unemployment rate that has almost made the phrase â€œjob securityâ€ obsolete. Unemployment is already at a 16-year high of 7.2 per cent some gloomy projections indicate the potential for 10 per cent unemployment by late 2009. Given the massive layoffs noted by companies delay, it is not hard to see why. Corning, Home Depot, General Motors and Caterpillar are among the early headliners this week cutting jobs.
Tuesdayâ€™s record low Consumer Confidence index reading (37.7) for December is evidence that Americans are definitely concerned about the prospects for a near-term recovery. The lack of jobs, fast-declining home values, struggling retailers, and ongoing credit issues continue to create an overwhelming burden on the minds and daily lives of people in all parts of the country.
President Obama has made it clear during his first week in office that putting together an immediate-impact stimulus package is his main priority at the start of his presidential term. He seems to be following through on his commitment as he took the bold step of meeting with GOP leaders Tuesday to help iron out the potential pitfalls that could keep the proposal locked up in Congress. Obama prefers to have the plan; which is expected to call for tax cuts, infrastructure improvements, educational investment, and other jobs growth investments, ironed out before it is formally presented.
The Dow posted a modest 38 point gain Monday as investorâ€™s awaited news about the potential for another round of economic stimulus action. Tuesday saw some optimistic earnings news liven up the markets. Well off highs, the Dow still managed a 58 point gain. Netflix posted a strong quarter while Yahoo suffered a 4Q drop, but beat analyst estimates. Jobless claims were disturbing yet again. November home prices plunged sharply again. Consumer confidence fell to a record low reading of 37.7 during December.
Januery 27, 2009
7:27 PM EST
Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.
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Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.
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