Tuesday, June 28, 2011

The Real Estate Market Double Dip

S&P/Case-Shiller came out with their monthly report on housing prices today. While there was a small seasonal increase from March to April, the year over year change in housing prices, which naturally adjusts for seasonality, continues to fall:

As you can see, we are currently seeing home prices fall at about the same rate as during the 1991 recession, right after the S&L crisis. What is most worrisome is that this contraction is occurring while we have near record low mortgage rates, which have recently become even lower thanks to the "flight to safety" into US Treasuries due to the Euro crisis. And it is simple math to figure out that the lower the interest rate, the more someone can afford to pay for a house. So what happens when interest rates start to rise? And if this economic "soft-patch" actually turns into a recession and unemployment goes up, what happens when all those people start defaulting on their loans?

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