Updated May 27, 2008, 2 p.m.
The latest house price news came out today -- the S&P/Case-Shiller index shows house prices down 14% since last year this time. That's the largest drop since this particular index appeared 20 years ago.
When it comes to housing prices, it's human nature to look around your own neighborhood, town or state to decide how you're doing. So, as this recent housing debacle plays out, folks who own homes in states where houses are appreciating in value – like Wyoming, Utah and Montana – feel a lot better than those who own homes in Nevada, California and Florida.
This despite the fact that home prices overall in the United States are going down. A government report out last week from the Office of Federal Housing Enterprise Oversight (OFHEO) says that U.S. homes prices were down 3.1% in the first quarter of 2008 compared with last year's first quarter. That is the largest decline in the OFHEO's purchase-only index in the 17 years it's been tracking house prices. California and Nevada were down more than 8%.
Housing, General Electric, Volatility -- Each one shows signs of the emerging bear market. Learn why in the latest Elliott Wave Financial Forecast avalable now.
Although we've become accustomed to negative news about U.S. home prices and foreclosures, perhaps it's worth looking outside of the U.S. of A. to see how other countries are doing. Surprise – home prices in 12 nations from 1990-2007gapped up much more than in the United States. Ireland, the Netherlands and Great Britain lead the list. A recent story in Bloomberg reports that asking prices for homes in the United Kingdom rose about 2.2% in April 2008 from the previous April, even though home prices based on agreed transactions fell by 0.9%, according to Britain's largest mortgage lenders. It's a classic case of homeowners not being realistic about a falling housing market.
Our analysts at Elliott Wave International draw an even larger conclusion about global housing prices. They say that the tremendous increase in global housing prices speaks of a big-time deflation ahead for a large part of the world. Here's an excerpt and chart from the latest Elliott Wave Financial Forecast to explain their rationale.
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"The worldwide scope of this bear market is confirmed by another sector that Elliott Wave International pegged as the front edge of the decline back in 2005: housing. Here’s the latest update on global home prices from The New York Times: 'The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices down from the Irish countryside and the Spanish coast to Baltic seaports and even in parts of India.'
In England, confidence in the U.K. housing market slipped to its lowest point in at least 30 years, which a closely watched survey of English appraisers described as 'the gloomiest reading since the survey began in 1978.' Every bursting bubble announces itself with a flash of public recognition, and here it takes the form of a rash of expert predictions that 'some countries, like Ireland, will face an even more wrenching adjustment than the United States, with the possibility that the downturn could turn into wholesale collapse.'
"There’s still evidence of fundamental economic strength outside the U.S. An April 18 story about corporate earnings notes that big U.S. businesses that sell to customers abroad are proving resilient, but Kelvin Davidson, an economist at Capital Economics in London, notes that the boom in house prices was actually much bigger outside the U.S. and, 'If anything, people should be more worried than in the U.S.'
"This chart from the International Monetary Fund shows how much more out-of-whack with the fundamentals home prices are in most countries than they are in the United States. Global business may be holding up, but don’t forget that it took more than a year for the Dow Jones Industrial Average to acknowledge the U.S. housing bust with a peak of its own. Global home prices are reversing amidst a slowing global economy and well-developed credit crunch, so the transition to The Elliott Wave Financial Forecast’s 'across-the-board decline in financial assets' should happen much faster."
Housing, General Electric, Volatility -- Each one shows signs of the emerging bear market. Learn why in the latest Elliott Wave Financial Forecast avalable now.