S&P/Case-Shiller Index shows record 10.7% drop

The Case-Shiller Index reported that home prices fell 10.7% versus a year ago as the housing crisis continues to deepen. 19 of the 20 cities included in the index reported price drops with Las Vegas and Miami leading the way with a stunning 19% drop in prices versus Jan. '07. This represents the largest price drops in the 20 year history of the index. This now makes it 13 consecutive months of price drops for the index.

The end seems no where in sight as housing prices continue to free fall. The price drops seem to be accelerating as builders and buyers are now starting to show signs of panic. I read yesterday that 30% of the sales in California in Feb. were foreclosures. Banks are dumping these properties at huge discounts which will further accelerate the price drops. We still have another $460 billion of subprime resets which will take the foreclosure rates even higher and push prices lower.

Around 10:00 Consumer Confidence came in at a 5 year low. The frightening part of this report was the gauge of expectations number for the next 6 months measuring how the consumer feels going forward. This number came in at 47.9 which was the lowest number seen since 1973! From the report:

"The Conference Board's gauge of expectations for the next six months slumped to 47.9, the lowest since December 1973, when the Watergate scandal rocked the Nixon administration and an embargo by a group of Arab oil exports was in effect, the report showed.
Stock prices extended declines following the report."

"The proportion of people who expect their incomes to rise over the next six months fell to 14.9 percent, the lowest since record keeping began in 1967, from 18 percent. The share expecting more jobs dropped to 7.7 percent from 8.9 percent."

Again more record lows. So as housing prices plummet, consumer confidence drops right along with it. The correlation we have here is as people lose equity in their homes they feel less wealthy and as a result spend less and feel worse from a confidence perspective. When you combine this with the fact that 85.1% of people are expecting flat incomes going forward while simultaneously inflation continues to rise due to the Fed rate cuts, people will feel even less wealthy. This is the perfect recipe for an economic disaster.

I have not even included the fact that the average savings in this country is 0 and the average American is about $10,000 in debt. We have never had a big slowdown with the average American in such a vulnerable position with zero savings. If we see a big jump in unemployment which is highly likely as the economy slows then we could see things that we haven't seen in this country since The Great Depression. Bread lines and Hoovervilles could be back in a hurry if we don't start saving and spending within our means.

The 20 year period of the roaring bubbles seems to be coming to an end. CNBC will continue to tell you how great the economy is. The data continues to say otherwise.