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"We've Run Out Of Buyers" - Half Of Homes In New York Are Now Losing Value

Late last month, when we reported that Case-Shiller's 20-City home price index missed expectations for the 3rd month in a row in June, bringing the string of flat price appreciation to 5 months, we said that perhaps, just perhaps, another pillar of the 'strong' US economy meme is being kicked out. We also noted that a Fed hike would be just about the last thing the housing market needs.

Well don’t look now but according to a new index created by Allan Weiss (co-founder of the Case-Shiller home price indexes), nearly half of homes in the New York and Washington metropolitan areas are falling in value by at least 2%.

More from Bloomberg:

The values of 45 percent of houses in both the Washington and New York areas slumped by at least 2 percent in June from a year earlier, according to a new index created by Allan Weiss, co-founder of the Case-Shiller home price indexes. In June 2014, only 15 percent of Washington residences dropped in value, while 20 percent fell in New York. Because the index is of only single-family homes, it doesn't include Manhattan. More properties also were in decline in Los Angeles, Chicago, Phoenix and Miami. 

 

A steady rise in U.S. home prices since the bottom of the market combined with weak income growth has made housing less affordable, especially in big cities. Credit remains tight and demand is now being driven primarily by buyers dependent on mortgages, as foreign buyers and investors pull back from the market. 

 

"What happens in any bull asset bubble such as what we've seen is you run out of buyers," said Chris Whalen, senior managing director at Kroll Bond Rating Agency Inc. and an advisor to Weiss. "It's hard to get deals done if the bottom third can't get a mortgage."

So there folks, is your "robust" housing market. A market which was previously dependent on “foreign buyers” (so, money laundering oligarchs, wealthy Chinese avoiding capital controls, Brazilians fleeing political turmoil and riding high on a previously strong BRL, etc.) and which is cratering now that it’s dependent upon demand from “the bottom third” who apparently can’t get a mortgage even with FHFA lowering minimum down payments and FHA cutting premiums. 

Of course none of this is helped by the fact that anyone trying to save for a down payment can’t get over the hump due to the inexorable rise in rents, which is itself the product of the 2008 bust which transformed a nation of homeowners into a nation of renters and served to erase two decades of gains in the homeownership rate in the space of just seven years.

So yeah, go ahead and hike rates.