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Are you ready to live as a renter in the cul-de-sac you used to own?
As home prices keep going down, many homeowners will see that they face negative amortization (they will own more than the house is worth). A rational answer to such a situation (above all, if they cannot afford paying rising interest rates) will be to let them have the houses. How much pressure will this exert on the banks’ liquidity is about to be seen. However, if the banks manage to concentrate large amounts of real estate on the hands of a few borrowers, they may stay out of trouble.
Home Prices: Steepest Drop in 20 Years
Tuesday August 28, 9:58 am ET
By Vinnee Tong, AP Business Writer
S&P Says Housing Prices Fell in 2Q by Steepest Rate Since Its Index Was Started in 1987
NEW YORK (AP) — U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor’s began its nationwide housing index in 1987, the research group said Tuesday.
The decline in home prices around the nation shows no evidence of a market recovery anytime soon, one of the architects of the index said.
MacroMarkets LLC Chief Economist Robert Shiller said the declining residential real estate market “shows no signs of slowing down.”
The report came a day after the National Association of Realtors said sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.
The S&P/Case-Schiller quarterly index tracks price trends among existing single-family homes across the nation compared with a year earlier .
A separate index that covers 20
Housing is among the economic indicators closely watched by Federal Reserve policymakers.
After five years of rapidly rising home prices, the market stalled last year, with prices holding steady or falling as sales slowed. Since then, lenders have made it more difficult for some people to get mortgages by tightening standards just as foreclosures rise and some who borrowed at adjustable rates facing higher payments they can’t meet.
Problems have spread from those with poor credit repayment histories to more creditworthy borrowers.
The Fed has taken a number of steps aimed at stabilizing the situation, and market watchers look further for a possible cut in the federal funds rate, which is the rate commercial banks charge each other for short-term loans. That rate has been kept steady at 5.25 percent for more than a year.
The Fed has its next regularly scheduled meeting on Sept. 18.
Fifteen of the cities surveyed for S&P’s 20-city index showed a year-over-year decline in prices in June.
S&P said it needed more data to determine whether
Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year. Other cities with falling prices included Tampa, Fla., San Diego and Washington, D.C., which all recorded drops of at least 7 percent.
Seattle and Charlotte, N.C., were on the small list of cities that saw prices rise in the same period.
In Monday’s report, the National Association of Realtors said sales of existing homes dipped by 0.2 percent in July from June to a seasonally adjusted annual rate of 5.75 million units.
The median price of a home sold last month slid to $230,200, down by 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.
Franklin @ August 28, 2007