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Tuesday, February 26, 2008


case/shiller 20-city off 2.1% in december, 9.1% YoY

per bloomberg:

Prices may fall further as would-be buyers hold out for bargains and foreclosures add to the glut of unsold properties, extending the worst housing slump in a quarter century. Shrinking home values and credit restrictions threaten to reduce consumer spending and push the economy into a recession.

``Home prices are headed lower,'' Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. ``With demand soft and inventories still high, there will be pressure on prices to keep declining.''

indeed, calculated risk here, here and here analyzed existing home sales data yesterday. to summarize: sales are off 25% from a year ago and are still collapsing; inventory is stubbornly near all-time highs, both in absolute terms and as a ratio of sales, in spite of the fact that this is january; and seasonal patterns suggest inventory will hit new all-time highs well before the summer selling season.

perhaps no surprise then, that the FDIC is preparing for a wave of bank failures.

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

as noted, regional bank concentration and overleveraging in commercial real estate has made for a very dangerous situation, particularly coming on the heels of the worst residential bust at least since the great depression, if not all american history. another FDIC warning note was issued today. this chart notes the crazed overdrive of commercial lending that took place as securitization relieved regional banks of the need to keep residential mortgages on their balance sheets. if economists like martin feldstein are right, this could be a very difficult period for banks and therefore the economy generally.

as CRE weakens with this debt bubble collapse, so will local and regional bank lending. with the securitization window having been shuttered tight with the collapse of shadow banking, that means non-conforming home loans are going to become very hard to get. and that will very probably drive both sales and prices down further.

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