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Housing Prices Slip Back Down; 10.7 Million Homes Underwater

Earlier this month, the Center for Responsible Lending put out a study asserting that the foreclosure crisis is only half over. We got some more data confirming that today in the form of the Case-Shiller report:

U.S. home prices are falling again in most major cities after posting small gains over the summer and spring. The report suggests the troubled housing market remains weak and won’t recover any time soon.

The Standard & Poor’s/Case-Shiller index released Tuesday showed prices dropped in September from August in 17 of the 20 cities tracked. That was the first decline after five straight months in which at least half the cities in the survey showed monthly gains.

A separate index for the July-September quarter shows prices were mostly unchanged from the previous quarter.

The only thing that has changed the dynamic on home prices in the last three years has been the first-time homebuyer’s tax credit. And that wasn’t very advisable, since it subsidized a class of well-off homebuyers who didn’t need the help and just shifted purchases rather than increasing them. Since that expired, no other meaningful solution to the housing crisis has been attempted. There have been little programs here and there, but nothing to fit the scale of the problem. And so sales and prices have moved either sideways or downward.

Every time a home price goes down, equity gets lost. We have 10.7 million properties with negative equity as of the last quarter, according to CoreLogic. Nevada has 58% of its mortgages underwater. Arizona’s at 47%. Florida is at 44%. The overall total is 22.5%, over one in five. And this is a slight IMPROVEMENT over the previous quarter. If prices dropped in September and continue in October and November, that number will start to creep back up.

There is no way to talk about the economy without talking about housing. The crisis, caused by the popping of a massive bubble and continued negative equity and foreclosures, doesn’t even seem to penetrate the consciousness, let alone inspire anyone to come up with fair solutions. As long as banks and investors are unwilling to accept losses in the system, we’ll be right back here next year, with more suffering throughout the economy.

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David Dayen

David Dayen