The other meltdown - Housing prices drop 18 per cent in October

The other big meltdown is the private asset meltdown. Along with stock prices, the housing prices have been taking a severe beating. This is a lethal hit against mortgagees in deadly times. Financial security is becoming a myth in the heartland.

The New York Times

After increasing steadily through the first part of the decade, home prices have fallen every month since January 2007, their slide accelerating as troubles in the housing market infected the broader economy and brought down financial firms. Now, as buyers sit on the sideline and a glut of unsold homes clogs the market, economists say that home prices might continue to slide throughout 2009.

Add to this the job losses, and things aren’t looking too rosy for cashflow through the mortgage belt. The combination is creating a big gap in market prices and the market’s ability to absorb those prices. Meaning a lot of capital which went into those houses is now working on a purely loss basis. In the current vegetative state of the domestic economy, with the business sector considering suspended animation until it’s safe to come out, that’s a sure fire way of undercutting any recovery attempts. You can’t borrow much on lower asset prices, even if your lenders are really trying to lend to restart the Great Economic Bicycle. So if, as in this case, they’re trying to remember what the word “lending” meant, asset values are likely to put a real damper on the party. Private capital, in effect, has hit several brick walls at once. Which in turn means a very slow recovery. A certain level of economic activity is required to reverse the domestic funeral procession of the last few months. That needs someone with some capital to play with. That capital isn’t likely to be coming out of the housing market. One of the great mortgage cash cows, the Miami market, is now looking like a cash strapped dormouse:

Prices in Miami fell by 29 percent. There, homeowners who tried to wait out the market are paying a price, said Madeline Romanello, a real estate agent with Douglas Elliman. Sellers who turned down offers of $700,000 for a house they had listed for $900,000 are now scrambling to sell for $550,000, she said.

If that tells you that the Miami market is feeling a bit off color, so is the mortgage industry. The mortgage market dwarfs most other private asset markets, and that’s where those assets have gone. The housing market won’t restart overnight. The problem is to get some credibility back into it, and convince buyers that they’re not about to commit financial suicide by buying a home.