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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Home Prices Take Record 19 Percent Plunge In Jan.

U.S. home prices dropped by the steepest annual rate on record in January, according to the S&P/Case-Shiller housing price index released moments ago.

In the 20 cities monitored by Case-Shiller, home prices plunged 19 percent in January compared to January 2008.

Overall, prices in the 20 cities are off 29 percent from their peak in summer 2006.

Last week, the National Association of Realtors reported that February sales of existing homes jumped 5.1 percent compared to February, largely on the strength of sales of distressed homes.

According to the Case-Shiller index, 14 of the 20 cities reported double-digit price declines compared to January 2008. Phoenix, where home prices have been hit harder than any other large U.S. city, showed the largest decrease from December 2008 to January 2009, with prices dropping 5.5 percent. Year-to-year, home prices in Phoenix were down 35 percent from January 2008.

Home prices in Dallas and Denver performed the best, relatively speaking, losing only 4.9 percent and 5.1 percent, respectively, compared to January 2008.

-- Frank Ahrens
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By Frank Ahrens  |  March 31, 2009; 9:07 AM ET
Categories:  The Ticker  | Tags: case-shiller, home prices  
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One factor that I've never seen discussed relative to housing prices is the huge transaction cost associated in buying and selling a home. It is between ten and twelve percent. Most of this cost is realtor fees and transfer taxes, although some of it is the moving costs between residences and the items required to make the new residence "whole".

Simply put, selling a home for $400K and buying and a replacement home for $400K entails an expenditure of $40K to $48K that adds no actual value to either the old or new residence.

Some of the current price decline is the "shaking out" of these inordinate transaction costs.

A secondary negative impact of these transaction costs is on workplace mobility. Do I take a new and better job that either increases my commute by twenty miles or causes me to need to move to a residence closer to the new job (and incur these costs)? Or do I remain with my current employer?

Much of the perceived increase in the value of homes has been the increase in the sale prices of residences necessary to capture buying/selling transaction costs. Renting is not perceived to be a viable option because of the mortgage interest deduction, and because of the erroneous(in my opinion) view of a house as an investment.

Until home turnover transaction costs are drastically lowered, the housing market will remain stagnant.

Posted by: billsecure | March 31, 2009 10:33 AM | Report abuse

Metropolitan Indexes like S&P/Case-Shiller MSA are very misleading because they treat the surrounding suburbs as part of the city, blending the suburban market which has completely tanked, with the urban market which is actually doing very well in most big cities (except Detroit, where this is often blamed the blight of urban highways).

Compare my house in a highly walkable urban rowhouse area (built in 1906) that blocked urban highway projects in the 70's... +4 percent in the last year. Baltimore City (just the city) -1.9 percent, Baltimore Metro -7.7 percent, and Statewide Maryland -12.6 percent. Nationwide, -11.8 percent. Interestingly, the farther you get from the urban center, the faster prices are falling.

Sounds to me like walkable urban neighborhoods are a winner here.

Posted by: lwatkins4 | March 31, 2009 12:34 PM | Report abuse

Every market is different, the most secure are were the value is centered on related qualification of buyers within the area. If the median household income is 50K and the median sales price is 150K they are fine.

Posted by: oengus1963 | March 31, 2009 3:53 PM | Report abuse

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