Thursday, December 9, 2010

Home Prices Fall $1.7 Trillion in 2010

U.S. home prices fell yet again in 2010, falling another $1.7 trillion in value.

Since the peak of the U.S. market in 2006, U.S. home prices have fallen a whopping $9 billion.

So, who is to blame for this debacle?

Wall Street, the greedy mortgage lenders, the insatiable real estate sales industry, even the get-rich-quick real estate gurus who promised instant wealth and long-term retirement security through real estate and Federal Reserve who made all that borrowing and leverage so easy and cheap.  What about the Federal and state governments that let all those abusives above happen?

Take your pick.  Or picks.

One person that can never be blamed for this mess is me.  I warned my readers for years that real estate prices were high, way too high.  I ranted and raved about the deteriorating mortgage underwriting process that was sweeping the nation, eroding the relationship between what a home costs and what it is REALLY worth.  I explained many many times that real estate prices, just like trees, cannot grow into the sky, not just with reason and rhetoric but numbers and examples before my eyes and in the press.

I'm not bragging, well maybe I am slightly, but I feel sad for my country, just like a failed Paul Revere.  I wasn't the only person who said that the real estate market was in a bubble about to pop, but it happened anyway.  I feel like I fell off my horse.

For the future going forward, there are few real catalysts stopping the real estate price slide anytime soon.  A stabilization or slow slide is more likely than more harsh shocks of the 2007-2008 era, but anything is possible because the United States and the world is now in uncharted waters, the so-called undiscovered country of economics and finance.  Never has the world been so broke before.  Every village, city, county, state, and Federal government are broke, crushed with debt and out of control costs.  For a great analysis on this point read this interview with Jim Rogers.  Most of Western Europe is already technically insolvent.  California looks like Greece.

$9 trillion is not just some numbers on a spreadsheet.  Most of that number is the wealth and savings of the American middle class, decades of investment gone in a flash, and the sad truth is that almost all of that money is never coming back.  Most of the jobs that were lost in the last recession are gone forever.  Life in American has and will profoundly change over the next generation, for better or worse, and right now I am not a betting man.