The Hard Sell: Why the Surge in Home Sales is Bad News

When I wrote about housing for Slate six months ago, I pointed out some of the houses on the market at asking prices 30 percent or 40 percent off what they'd sold at just a year or so earlier. The response was disbelief. Did I select my examples at random, one reader asked me snidely in an e-mail, or did I cherry pick to get the most dramatic numbers? Well, I didn't cherry pick, and now you won't find anyone doubting that drops of this scale are par for the course.

Unfortunately, we have a lot further to go. The Case/Shiller price index, a measure of home prices going back to 1987, shows California home prices still at about twice where they were at the peak of the last big housing cycle back in 1990. So just to get back to the top of the last peak, prices would have to drop another 50 percent. Interest rates at that time were substantially higher, in the range of 10 percent a year. If you take that into account and look not at sales prices but at the cost of paying mortgages, we're still in for another drop of 30 percent. That's if prices don't fall below the last peak and interest rates stay at 6.5 percent or less. In other words, it's a best-case scenario.

These numbers are so dire that they might sound like scare mongering, except that if you look through the recent sales listings at any number of online sites, you won't have to search very hard to find price drops right along the lines of these numbers. This house in Riverside, Calif., for instance: bought for $586,000 in 2006, foreclosed on in November 2007, and now sold again this summer for $147,000-just 25 percent of what it sold for two years ago. And here's another heart-stopping fact: Even that vastly diminished sales price was financed, according to real estate records, with a 100 percent mortgage. Good luck getting one of those now.

What this means for homeowners is that if you happened to buy at the peak of the boom, your house is unlikely, in inflation-adjusted terms, to get back to the price you paid for it for another decade at best, if ever.