In 2009 the Government conspired in coordinated fashion to prop up housing prices, and for 5 months succeeded in generating nationwide appreciation.  This costly exercise was necessary to establish the narrative of an economic recovery. 

Since July 2009, though, the housing market has been collapsing.  Not even the $8,000 homebuyer tax credit, which created artificial demand on the eve of its original expiration date, was sufficient to prevent national price declines.

Housing trends have now been negative for 7 months as of February.  Prices have fallen consistently since September 2009 (5 straight months).  These declines are accelerating as economic fundamentals and housing market conditions overcome Government intervention.



And then there was one... 



Congratulations to San Diego!  The last market within the Case-Shiller Index to succumb to economic reality.   

Over the past 5 months, while the stock market rallied and consumer spending perked up, housing prices have been tumbling.  It was eroding real estate values that created the economic recession.  It is unlikely that the current narrative of recovery will be maintained while the root cause of the downturn regains momentum.



Consider the plight of first-time homebuyers who in September subscribed to the National Association of Realtors' advice and purchased a home with the aid of the Government's "once in a lifetime" $8,000 tax credit.  In only 5 months these owners were down 4% in Portland, Tampa, Minneapolis, Dallas, Cleveland and Atlanta.  Chicago buyers have lost more than 7% of the value of their new homes, in many cases are now underwater, and well on their way to becoming the next iteration of foreclosures.




(Explanation Behind Analytical Methodology)

The Government's new expiration date for the $8,000 tax credit is April 30th.  As expected, this subsidy has increased demand for houses in March and April.  In May and June that demand will evaporate.  Why buy a house in May when you could have been paid to do so in April?

November's surge in demand was unable to manufacture price appreciation.  It is unlikely that a similar spike will increase prices in March or April, given that housing fundamentals have worsened appreciably during the interim.

It will be interesting to see whether the expiring subsidy temporarily impedes accelerating price declines.  Of greater importance, though, is what happens to prices in May and beyond?  The summer is traditionally the home buying season, but renewed depreciation, a rising share of foreclosures, higher interest rates, and Government incentives that have sapped demand are likely to send valuations sharply lower.