Home Prices Fall 11.4% in January

I have to say that is quite a shocking number - after median prices held up as sellers were very stubborn throughout 2007, failing to recognize reality and waiting for the "bounce" back to 2006 prices, it appears we are finally getting some capitulation. Remember, "they" told us this could never happen [Jan 24: They Said It Could Never Happen. Ever. They Lied.]

While many will hand wring over this number, it is a bullish development to me. As I've outlined before [What Should Median Home Prices be Today?], home prices need to fall for the free mark.... err.. for our socialist market to react. We've seen the homebuilders slash prices already - it was the homeowners who were still living in denial world. But as more and more supply hits the market (especially forced supply through foreclosures and walkaways), competition will increase and prices will drop. Which will eventually spur new owners into the market.

So the process is now beginning in earnest (bullish) - now we just need to find some people in America who could actually put 10% down on a home (bearish) and the lenders have to want to lend to them. With our savings rate so pathetically low as a nation, I just don't know how many people who don't ALREADY have a home have 10% down sitting in the bank account (on a $200K house thats $20K). The other alternative is a return to pushing 1% down, 3% down, and 5% down loans, but I don't know how many lenders will risk that in an era where home prices are falling. If you put 3% down and the home price drops 8% the homeowner is underwater immediately and a future "walkaway" candidate.

So we remain between a rock and a hard place despite what the pundits tell you. When the "rebound" comes its not going to be a straight shot up - it's going to be a long sideways. But as houses become cheaper, more people can actually afford them (a foreign concept eh?) and more people will have enough to put a solid down payment on the home (another concept lost in the excesses of the past half decade). Now if we could only get our socialist government to back off and allow this to happen, just imagine the long term positives.

• A widely watched index of U.S. home prices fell 11.4 percent in January, its steepest drop since data for the indicator was first collected in 1987. The decline reported Tuesday in the Standard & Poor's/Case-Shiller index means prices have been growing more slowly or dropping for 19 consecutive months. The index tracks the prices of single-family homes in 10 major metropolitan areas in the U.S.
• The broader 20-city composite index also fell, dropping 10.7 percent in January from a year ago. That makes it the first time both indexes dropped by double-digit percentages.
• "Home prices continue to fall, decelerate and reach record lows across the nation," said David Blitzer, index committee chairman at S&P. "No markets seem to be completely immune from the housing crisis."
• Blitzer said all 20 cities S&P tracks have seen dropping prices for five consecutive months, when compared to the prior month. What's more, the declines are growing in severity, with 13 of the 20 cities reporting their biggest single monthly decline in January.
• Washington, D.C., and Minneapolis both slipped into negative double-digit territory for the first time in January, recording 10.9 percent and 10 percent drops compared to last year.
• The worst performing markets are Las Vegas and Miami, which both reported 19.3 percent drops.
• Other cities that showed double-digit percentage losses were Phoenix (18.2), San Diego (16.7) Los Angeles (16.5), Detroit (15.1), Tampa (15) and San Francisco (13.2).

Meanwhile, while the upper 1% on Wall Street continues to clap like seals cheering on their Kool Aid "2nd half recovery" in the US consumer; said consumer in bottom 80% is living a whole different life on Main Street. Systematic destroyal of the lower middle class (and moving up to middle middle class through inflation) will finally become a realization to those upper 0.5% living in $1.6 million apartments in NYC (average salary of $1.4M for investment bank managing director). But then they can push out the "6 months everything will be fine" to "1st half 2009". While blowing kisses to Uncle Ben because inflation really doesn't sting too much in the $1M+ bracket.

• Consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects deepened worries that the economy has fallen into recession. The Conference Board, a business-backed research group, said Tuesday that its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The March reading was far below the 73.0 expected by analysts surveyed by Thomson/IFR.

But don't you worry traders - it's time to buy retail stocks because the consumer will be back in force in the malls with their $600 checks come summer. So buy buy buy. That's what the playbook says, and the playbook knows all.