Jul 29 2008 12:48PM | Permalink | Email this | Comments (0) |
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Today the S&P/Case-Shiller Home Price Index came out and showed a 15.8% decrease in May home prices compared to a year ago. The index is measured across 20 markets and this decline represents the 22nd consecutive month in which there have been declines.

While all of that seems like bad news, I think these are positive things for home builders. First, we know prices have to come down to bring buyers back. They won't go shopping if they think they can get a better deal next month, so let's get this thing bottomed out quick and get those buyers back quick!

Second, the rate of decline has begun to decrease since the steep drops at the beginning of the year. The first sign of a move to a recovery is the negative numbers begin to get smaller. 

Those are good things. The bad? Home prices are down and that hurts builders profitability, making it even more difficult to manage cash flow, placing more builders on the edge. I think we also need to recognize that just as home prices overshot their natural value on the way up, they will probably overshoot their natural value on the way down.
 
Here's a great clip from Bloomberg News that analyzes the recent housing news.