Case-Shiller Index Has Housing In Double Dip

The March reading of home prices by the Case-Shiller index has the average sinking below its April 2009 low, implying that housing is in a double-digit recession.

“Home prices continue on their downward spiral with no relief in sight,” said David Blitzer, chairman of the index committee at Standard & Poor’s. Read the full S&P release.

Housing has been plagued by issues that have created a Gordian knot for the sector.

On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called shadow inventory of homes that sellers and banks want to list but have not, waiting for a more favorable environment.

On the demand side, many consumers are still having difficulty qualifying for mortgages, even though rates are low.

There may be hope for the housing market from an unexpected source. If you've spent some time poking around the real-estate market, you've undoubtely read, heard about or even seen the new white elephants. Unlike during the 1930s, these are not mansions with huge carrying costs. They're regular homes that have been in foreclosure for years, and/or are in gutted neighbourhoods. Some are offered at a near-home price, but some are offered at nominal amounts. There were lots of houses in Detriot that could be bought outright on a credit card. The trouble is, they're money pits.

That's not just because they take a whole lot of dough to fix up due to being gutted, vandalized and-or rotted. In some shifty neighbourhoods, which are housing-destitute, they're occupied by rough characters who are squatting. I've read one person relating a tale about fixing up a house for resale only to find that the new furniture and fixings were stolen, just like the old ones were.

Even if thieves don't take advantage of improvements, a lot of those houses are little more than tear-downs now. They're formally counted as inventory, but as time goes by and damage increases they become more unsalable. A tear-down might as well be raw land.

That, believe it or not, is a salvation for residential real etate: time, wreckage and rot turning shadow inventory into unsaleable imaginary inventory - now kept on the books because the banks are afraid to write them off. There's already a substantial differential between new and used homes, and the former are moving. Word had gotten out that a used house is becoming like the used car of old legend. Once the wrecks are written off, inventory will necessarily shrink.