GO
Loading...

Drop In Home Prices Shows Signs of Worsening

AP

If you think the decline in home prices is bad now, just wait.

Two reports out his week show the once high-flying housing market is quickly losing altitude and that prices are likely to head still lower.

According to the S&P/Case-Shiller Home Price Index released Tuesday, prices fell 3.2% in the second quarter, the sharpest decline since the index was created in 1987. The pace of decline accelerated from 1.6% in the first quarter.

On top of that, the National Association of Realtors reported on Monday that the median price of existing homes eased 0.6% in July, to $228,900.

Both reports portray weakening housing prices, but the declines have been in the single-digits or smaller so far. That may be about to change.

"I think we’re yet to get to the main event," said Gary Shilling, president of A Gary Shilling, a money-management firm. "We continue to look for a 25% decline in median single-family house prices. I think this is really just getting started."

Of course, for first-time homebuyers, a decline that big would be good news. But for existing homeowners, a 25% drop could be devastating, Shilling said.

It "would wipe-out the equity of the average homeowner who has a mortgage," he estimated.

Shilling's forecast may sound as if it's on the fringes, but he said, "a number of people are not in our camp, but moving toward it."

Last week, Goldman Sachs chief economist Jan Hatzius said in a note to clients that "our working assumption has been that U.S. home prices are about 15% overvalued."

And On Tuesday, another Goldman economist, Andrew Tilton, expressed concern that prices are falling at a faster-than-expected rate.

"It does look like there's a bit of acceleration in the pace of decline and this comes before the credit crunch," Tilton said.

Featured

Contact Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More