The release of the Case-Shiller house price index for June got some attention today, but not nearly as much as it deserved. The basic story is that house prices are down an average of about 3 percent on a year over year basis. But this is really just the beginning. Prices in many areas have taken a sharp drop in recent months, so that the annual rate of decline has been far steeper recently. For starters, the annual rate of decline from the first quarter to the second quarter has been 8.1 percent in Phoenix, 10.3 percent in Tampa, 12.7 percent in Miami, and an incredible 18.7 percent in Detroit. If you annualize the rate of decline over the last three months (a more erratic measure), you get a drop of 7.8 percent for Phoenix, 12.1 percent for Tampa, 16.2 percent for Miami, and 19.0 percent for Detroit. Remember, these data only go through June and refer to closings. That means that these homes were put under contract in May or even April, several months before the credit meltdowns of the last few weeks. Also, remember that these numbers refer to contracted prices. This means that they don't include any kickbacks that sellers might have to throw in to close a deal. (The Case-Shiller index is a repeat sale index, which means that it tracks sale prices of the same homes. Therefore it is not distorted by changes in the mix of homes sold.) Prices are not down every everywhere. Seattle and Portland are still showing double-digit gains for the second quarter. But supposedly bullet proof markets like NYC and DC are showing substantial declines, 4.1 percent and 5.0 percent, respectively, annualizing from the first quarter to the second quarter. Given what we know has happened to the market since these sales were contracted, it is hard to believe that the rate of price decline has slowed. This is big news.
--Dean Baker
