US Housing Market Loses $536 Billion In February

Half a trillion wiped out in a month? It looks that way when you examine what happened in February in America’s housing market.

Housing prices were down almost 3%.

No bottom in sight?

We’re looking at the top 20 housing markets and then extrapolating to the whole country.

Makes a rough sense to me.

Asha Bangalore writes:

It sure is a good thing that $150 billion of checks from the IRS are in the mail to U.S. households because these same households experienced an evaporation in paper wealth in February to the tune of about $544 billion according to my admittedly back-of-the-envelope arithmetic. It was reported today that the Case-Shiller house price index for 20 major metropolitan areas fell 2.66% month-to-month in February. Applying that percentage decline in house prices to the fourth-quarter value of $20,154.7 billion for household residential real estate from the Fed’s flow-of-funds data yields a decline of $536 billion. Now, this is a very rough approximation for at least two reasons. Firstly, the Case-Shiller price index is for only 20 metropolitan areas, not the whole country. So, the Case-Shiller index captures the decline in house prices in the Manhattan, New York area but not the Manhattan, Kansas area. Second, the value of residential real estate in the Fed’s flow-of-funds accounts is based on the OFHEO house price index. But even with these qualifications, I feel confident in saying that the value of households’ residential real estate assets fell in February by some multiple of the aggregate value of the checks households will receive as part of the Economic Stimulus Act of 2008.

Of course, the check from the IRS is cash in hand and the decline in the value of residential real estate is a “paper” loss. But when residential real estate values were going up, households were turning these “paper” gains into cash in hand by borrowing against the rising value of their houses. Back in 2006, households were extracting more than $500 billion of equity from their houses (see chart below), which was about 6% of their after-tax income. That home equity is now in full-scale retreat. Moreover, it is tougher to qualify for a mortgage or home equity loan with which to extract any remaining equity. This is one of the strong headwinds aggregate demand is experiencing now.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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