How Far We’ve Fallen

No one is making too big a deal out of the fact that home prices continue to fall. Some are calling this a double dip, but for homeowners it’s a continuous slide into an underwater condition on their homes.

According to this story by Stephen Foley, home prices in the United States have now fallen more, on a relative basis, than they did during our Great Depression.

“The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.”

According to the Case-Shiller National House Price Index, we’re back to house prices of the 2002 levels. With no relief in sight.

As we struggle to recover, the world is watching. There is nothing in this news that is likely to instill confidence in foreign investors, nothing that will make them eager to invest in our mortgage-backed securities. Until we get another buyer for our mortgage paper, someone other than the Fed, our market will continue to struggle.