| S&P Case-Shiller Indices Reflect Further Declines in October |
| Written by Jonathan Smoke | |
| 12.30.2008 | |
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Discuss this article on the forums. (0 posts) Today Standard & Poor’s released the October readings for the S&P Case-Shiller Home Price Indices. It was no surprise that they reported “...continued broad based declines in the prices of existing single family homes across the United States, with 14 of the 20 metro areas showing record rates of annual decline and 14 now reporting declines in excess of 10% versus October 2007.” The report focused on the year-over-year declines in each of the twenty markets covered. On the year-over-year basis, Phoenix, Las Vegas and San Francisco were the worst performers, each losing over 30%. Phoenix and Vegas also head the list of worst markets from a decline from peak basis as the chart below indicates. Phoenix has lost 41% of its peak, which it hit in June 2006. Las Vegas has lost 39% since its peak in August 2006. Those dates are curious to me as the peaks seem to have lagged the actual peaks in the market, at least from a new homes perspective. New home construction and sales peaked in 2004-2005. In the chart you can see that there are three basis clusters of losses. The bulk of the most extreme bubble and economic collapse markets have experienced over 30% declines since peak. Another large group of markets have experience low double-digit declines. And of this elite NFL-sized market set, only three markets return declines in the single digits. While the declines are significant, it is also interesting to note that of the 20 markets only Detroit has failed to show a return from the index’s base period of January 2000. In fact, the 10 city composite has a 7% compound annual growth rate with the latest month factored in since January 2000. Of course, we’ve got at least two more months of horrible performance this year yet to be factored into these lagging indices, and the declines are likely to continue into 2009 before we hit the trough. If we see much further declines in markets like Atlanta and Dallas, we’ll be nearing negative returns over the long haul. But it’s going to take significant further deterioration to detract from the returns from investing in real estate in New York, DC and LA. 
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