Home Price Double Dip Begins

The trouble with many of the "indicators" we report is that some are pretty current and others are severely lagging. Home sales are generally the former and home prices the latter.

That's why, given the combination of the expiration of the home buyer tax credit and the increasing number of loans moving to final foreclosure, we knew that home prices overall would take a hit, but it would take a while.

Well we're here.

Two new reports out today prove the consequences of oversupply of organic inventory (12.5 months on existing homes in July according to the National Association of Realtors) and the shadow inventory of foreclosed properties (estimates vary widely and wildly). CoreLogic's Home Price Index shows home prices "flat" in July as transaction volume continues to decline. "This was the first time in five months that no year-over-year gains were reported," according to the release. In June, prices were up 2.4 percent year over year. In addition, "36 states experienced price declines in July, twice the number in May and the highest number since last November when prices nationally were still declining."

And there's the rub.

Prices have been recovering since last Fall, largely thanks to the artificial stimulus of the $8000/$6500 home buyer tax credit. But prices were also benefiting from a slight bump in confidence in the housing market, fed by an apparent drop in the foreclosure numbers. In reality, the foreclosure numbers were dropping only because banks and states were delaying the process, as they tried to cram as many borrowers as possible into what we now know is a largely unsuccessful government-backed mortgage modification program.

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