By: Dr. Mike Campbell
The Case-Shiller Index charts the value of US property stock in a ten and a 20 city sample. It is designed to give a national snapshot of what prices are doing in this key sector of the US economy. The index is a lagging measure, coming out two months after the data was collected, so it has yet to respond to the boost in the sector seen last month.
Data released from the most recent survey shows that the monthly house price has fallen back by a further 1.2% from the September value for the broader based 20 city index. The fall is anything but uniform – for instance house prices fell by an average of 5% in Atlanta, Georgia, reflecting local factors such as unemployment variability.
Taken on a year-on-year basis, the average value of US homes fell by 3.4% for the three month period ending in October, compared to the same period in 2010. Since the end of the US house price Bull Run in 2006, the price has collapsed back to levels last seen in 2003. The value has fallen from a high of approximately $275000 in 2006 to $16000 today (on an inflation adjusted basis).
The US mortgage rate is at an historic low of 3.9%, so housing has not been more affordable for a long time. However, concerns about the economic future, job security and the challenges of securing a mortgage in the first place, all conspire to stifle demand. Of course, it was the poisoned pill of the sub-prime mortgage which triggered the global financial crisis. People with trouble credit histories were offered mortgages which were then “securiised” with similar loans and higher quality debt to provide an investment vehicle – once the obvious elephant in the room had been spotted, it was only a question of time before a wheel came off.