May decline in home prices worst ever
Making headlines today is the release of the Standard & Poors/Case-Shiller Home Price Indices. According to this index, there was a nationwide decline of 15.8% in home values in May when compared to the same time last year. In Los Angeles, as noted by the Los Angeles Times, the decline is much more distressing:
The Los Angeles area saw a 24.5% May price decline from a year ago and also hit a record low annual decrease.
As many of you remember, we endured a real estate downturn in the early to mid nineties that resulted in a similar percentage decline, but with a major difference:
The Los Angeles decline from the peak now matches the 1990's real estate downturn, but has occurred in less than two years. In the previous real estate cycle, Los Angeles area prices declined more gradually, falling 27% from 1990 to 1996 before stabilizing, according to the Case-Shiller index.
What does the rapid decline mean to the bankruptcy world? With the present decline compressed to a period of only two years, versus seven years in the nineties, it seems inevitable that the volume consumer bankruptcy filings will increase--as has already happened--as families come under increasing financial pressure. This pressure is on all fronts as the price of consumer goods increases and families do not have the fall back reserves of equity that they would usually rely on.
But commercial bankruptcy is also becoming more prevalent as the real estate and oil price woes are impacting sole proprietorships and closely held businesses, along with the headline-making corporate bankruptcies. Chapter 11 filings in the first quarter of 2008 were up 61.5% over the same period in 2007 (200 in 2008 and 123 in 2007). While not historically record breaking when compared to the 1990s, the quantity of Chapter 11 filings indicates an upward trend that may only now be catching up with the declining economic conditions of the country.
If you would like to go deeper into the home price data, access the historical data for this index at the Standard & Poor's website.
