As oil and gas prices are spiking to new records on an almost daily basis, home prices continuing to fall at historic rates. Premium unleaded gas prices have cleared the $4 mark nationally, while the retail gas price for regular unleaded is nearing that mark. The gas rates are certainly first in the day-to-day mindset of most Americans. However, continued reports show the housing market situation is not improving, which is concerning to many homeowners as well.

The Office of Federal Housing Enterprise Oversight, the group that issues the most thorough index of housing prices, said today (May 22) that home prices dropped 3.1 percent during the first quarter of 2008, from the same quarter in 2007. The drop is not surprising considering 2007 was the first year in 40 that annual home prices declined in the US. The final quarter of 2007 saw a decline of .45 percent from the fourth quarter of 2006. These last two quarters are the only ones since the index began in 1991 that have shown a quarter over quarter price decline. Additionally, the 1.7 percent fall from last year’s fourth quarter to this year’s first quarter was a new record drop for a subsequent quarter.

The Federal Housing Enterprise’s index is considered to be the most comprehensive evaluation of the US housing market. Another commonly referenced home price gauge, the Standard & Poor’s/Case-Shiller index, provides a housing outlook based on readings from larger metropolitan areas. The index is due out next week and is often used as an assessment of the effects of the sub-prime mortgage problems, and housing recovery for homes impacted by the loan problems. Their recently monthly indexes actually showed worse conditions based on their large market readings. This suggests that metropolitan areas are suffering much worse from the housing crisis than smaller rural areas.

The readings from today’s report show that some Midwestern states in the US have been less affected by the housing price drops because they did not rise as rapidly during the boom. Despite a few outlying performers, 43 states showed price declines during the first quarter. This suggests that the problems are fairly broad-based.

It is widely anticipated that the trend of lower home prices will continue through 2008. Most forecasts have called for the second consecutive annual price drop. Analysts have project a 5.4 percent annual fall is likely to result from the S&P/Case-Shiller index when it is shared later this year. Many analysts have commented that price depreciation should slow later this year leaving markets poised for modest growth to begin 2009.

Speculation is that current data showing home price drops is largely driven by a stock pile of houses still saturating the home sale market. With excess inventory on the market in many areas, buyers are still in control in terms of price negotiations. At some point, as excess inventory begins to become depleted, prices will begin to rebalance and gradual growth should return.

Some good news from today’s financial reports included a drop in jobless claims for the first time in four weeks. It is obviously important that Americans are finding work considering the roughly $4 per gallon gas and the falling home prices. It seems as though many business and organizations are finding opportunities to expand their positions and offer new jobs. This is should be a great boost as the economy and financial situations sort themselves out. Some analysts have suggested that gas prices may be near the end of their late spring spike. This does not mean that drivers are out of the woods, but it means that there might be hope for a brief delay in the run up of fuel rates.

Market Recap

Wednesday was a devastating day for US equities. The Dow dropped 227 points while the NASDAQ and S&P were down 43 and 22. Oil skyrocketed past $135 on a supply drop report. Fed meeting minutes suggested slower growth and higher unemployment was likely for 2008. Stocks were up modestly Thursday following two days in the red. The Dow gained 24 points, with the NASDAQ and S&P up 16 and 3 points. Oil dropped back a bit. Home prices showed their largest drop in 17 years. Jobless claims improved to reach their lowest level in a month.

Neil Kokemuller
Thursday, May 22, 2008
11:35 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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