More bad news for the U.S. housing market: according to the Standard & Poor's/Case-Shiller year-over-year index, there is a new record for the largest year-over-year fall in home values. The index reported a drop of 6.7 percent year-over-year in October for the top 10 metropolitan areas and a drop of 6.1 percent for the top 20 metropolitan areas. Out of the top 20 metropolitan areas, only three reported positive gains: Seattle, Portland and Charlotte.
In Seattle, prices aren’t dropping because sellers are not dropping their prices. Not much of anything is moving right now in the Seattle market. Sellers have been able to wait it out so far, but it remains to be seen just how much longer they can, or will, continue to wait. One thing is certain, though: The market is not as great here as the national media make it seem.
The previous record for the Standard & Poor's/Case-Shiller year-over-year index for the top 10 metropolitan areas, set in April 1991, was 6.3 percent. Homeowners and investors can remind themselves that home prices recovered from that previous low and they will eventually recover from this one as well. What we don't know is how low prices are going to go, or how long it will take to recover.
At this time, investors would be wise to focus on cash flow, not appreciation. Properties that provide cash flow are much more likely to retain their values. Once the market turns around, investors can look at getting back into more speculative plays.