The big question in residential real estate for the last year or two has been when will home values hit bottom and start heading back up. The general assumption had been that at that point many potential home buyers would jump into the market and this would start a healthy climb in values. They have been waiting on the sidelines not wanting to buy a house that would continue depreciating. But when prices would stabilize and start climbing back up, they would want to get in on the “ground floor” of the next period of price increases.
But unemployment has remained persistently high, gasoline prices have skyrocketed, and food and other commodity prices have edged up significantly. All of these diminish the buying power of potential home buyers. Add in international tensions in North Africa and the Middle East, as well as the triple earthquake/tsunami/nuclear disasters in Japan, plus the intense political squabbling in Washington about the federal budget. So, not surprisingly, consumer confidence took a major hit in March. After inching up for five straight previous months, it fell so much that it erased those earlier gains. So consumers have neither the money nor the confidence to get into the housing market.
As a result, after a number of months when it seemed that home values were starting to stabilize, they’ve started falling more sharply again.
Nationally, the Case-Shiller Home Price Index, which measures prices in 20 metropolitan areas, was down 3.1 % from January 2010 to January 2011. But in the prior two months, the prices were down 1.0% EACH MONTH, a much steeper decline, which would equates to a 12% decline annually.
Portland was much worse. The January 2010 to January 2011 reduction was 7.8%, more than two and a half times worse than the 20-metro average. And the price decline from November to December 2010 was 1.2%–equating to 14.4% annually. Then accelerating further to a decline of 1.8% from December to January 2011—which would be a depressing 21.6% annually.
As a result, home prices in Portland have hit a new low during this recession. And there is no indication that this downward direction will change soon.
So is this a “double-dip,” where prices go back down after starting on their way up earlier?
Nationally, yes. The Case-Shiller index fell from mid-2006 until the 2nd quarter of 2009, when it started a slow increase that persisted most of the rest of that year, only to turn down again in early 2010, bumping up again in mid-2010, only to head downhill ever since. So, yes, on the national front, we’re in a double- or even triple-dip in home prices.
In Oregon, also yes. After hitting top prices in mid-2007, a year later than nationally, our prices also first hit bottom in the first half of 2009, and have largely followed the direction and timing of national price increases and decreases since then, with the recent even sharper price declines recited above. The result is that in Oregon, worse than nationally, we have now gone lower than the short-lived trough we hit in 2009. So by any definition of a “double-dip,” we are unfortunately definitely in one now. The scary result of the recent downturns coming AFTER modest gains is that even when home values do start inching back up next time, there will be no confidence that it HAS turned the corner. This will make turning that corner all the harder.