Home, Home I'm Deranged, Part 18

The three-year Housing Depression continues to roll on unabated into year number four.  It is self-sustaining and growing to consume nearly every housing market in the country, and there is no sign whatsoever that housing prices will turn around anytime soon.

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.

In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.

The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.

“When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12 percent correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.”

Seattle is down about 31 percent from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10 percent to fall. Mr. Humphries estimates the rest of the country will drop a further 5 and 7 percent as last year’s tax credits for home buyers continue to wear off.

“We went into 2010 feeling gangbusters, thanks to Uncle Sam,” Mr. Humphries said. “We ended it feeling penniless, with home values tanking.” 

There is no city immune to the Housing Depression.  Real estate prices have dropped by trillions.  First the bubbles in California and Florida went.  Then secondary markets like Cleveland, Detroit, and Indianapolis collapsed where the economy was weakest to begin with.  The third wave drove housing prices down in smaller, growing markets like Boise, Little Rock, Charlotte and Phoenix.  Now the fourth wave is ravaging the upscale cities of Seattle, Manhattan, Boston and states like Maine and Vermont.

Can't happen here, prices will turn around.  Can't happen to my home, they said in 2008.  Now prices are down 30, 40% in some places.  Homeowners are underwater and owe more than the house is worth, and they are walking away and taking the economy with it.

Meanwhile commodity prices are right back to their 2008 highs before the crash.  This time, when the bubble bursts, we won't have trillions to lose.  We're already in a recession, bordering on a long-term depression.  Certainly the depression in housing is long-term and will remain that way for a very long time.

I've been warning about this since I started this blog two and a half years ago.  If it's gotten to the point where the NY Times has noticed it in places like Seattle, then the game truly is over for the housing market.  We're in the spiral now, folks.  People keep saying "Well, we have another 10% to fall but after that..."

Which is what they said six months ago.  And six months before that.  And six months before that.  And housing prices keep falling and are showing no signs of slowing down.