Tipping Point?

I read somewhere last year that the nationwide total real estate market had never gone down more than 20% since the Great Depression. It took ten years after the great depression for prices to come back to their former highs.

The July S&P Case-Shiller index indicates that we hit that low over the summer. [Look at that graph and tell me if that's not the nastiest thing you've ever seen.] Granted, Case-Shiller is not a clear reflection of the total U.S. real estate market. It measures single family units in 10- and 20-city composites leaving out commercial real estate, raw land, condos, townhouses, and new homes. That being said, as of the end of July, the 10-city composite showed a 21.1% decline from the June/July '06 high and the 20-city composite showed a 19.5% fall from the high. So we are nearing Great Depression territory at least among lived in, single family homes in the big metro area markets.

Who knows where we're headed. Some suggest that the market is showing signs of bottoming in some areas. The rate of price decline in some markets is slowing. It's hard to believe we're bottoming, tho, given the fact that the credit markets are nearly frozen and we have yet to see many of the bank-owned foreclosed-upon subprime homes hit the market. At the same time, the number of existing subprime mortgages is falling as more and more people refinance or leave the keys on the counter for the bank. Certainly the market will not turn until the inventory heads back in the other direction. In August there was a 10.4 month inventory of houses on the market. Tho, down from a high of 11.1 months in July, that needs at least to get back down below 9 months.

The determinant--and the big mystery--is the effect the economic turmoil over the last few weeks will have on all this. It can't make things any better. And surely there will be unintended consequences, most of them probably negative, that come with any new legislation and regualtion from inside the Beltway.