Great news America!  House prices only fell by 18.1% nationally in April.  Isn’t that fantastic?  Apparently the pace of the free-fall is declining giving newspapers and professional analysts nationwide something to sing about.  According to the AP this demonstrates “newfound signs of stability in the housing market”.  My local paper ran the headline “Home Price Drop Slowing”.

Some Context

Three years ago the Housing Optimist Holy Trinity was:

1. Housing prices have not fallen nationwide since the Great Depression
2. Housing prices could never fall nationwide since all markets are local
3. Owning a home is safe and a good investment

How things have changed.

Some Economic Perspective

• The housing market is a centrally important component of the economy

• Collapsing housing prices and rising foreclosures caused and are proliferating the economic downturn

• The housing market and broader economy are dangerously leveraged

• This destabilizing, potentially ruinous, leverage continues to increases for every dollar by which the nation’s housing prices decline

• As such, falling house prices are cataclysmic to consumer spending which represents close to 67% of GDP

• As long as housing prices are falling the economy will continue to get worse

• When it comes to the purchase or ownership of an expensive, highly leveraged asset, any price decline has a magnified negative impact on equity and materially increases the likelihood of financial distress

• While an 18.1% decline is less bad than a 20% decline they are both terrible

• The rate of price declines was not going to accelerate forever, nor was it going to persist at 20% into perpetuity

• If housing prices ONLY decline nationally by 8% during the next 12 months this will not be good news, it will be economically disastrous

• Housing prices could and are likely to decline annually for years in real and nominal terms

• “One month a trend does not make” – Yoda, "TESB", 1980

• Japanese home prices declined annually for almost 15 years following their eerily similar housing bubble.  I am sure that during year 3 of the malaise some intrepid news source reported that the pace of price declines had slowed.  I am assuming it was reported as good news.

• Should data trends demonstrate definitively that housing prices are stabilizing (defined as not falling) that would indeed be positive news for the economy