I lost millions in real estate three years ago. So the fact that housing prices are falling again doesn't shock me as much as it should, even though this time it's happening in the real world instead of a virtual one.
In early 2008, Zillow dropped the value of my house from $6.6 million to $5.5 million. Did I worry? Sink into depression? Cry? Nope. I just ignored it.
The reduced Zestimate was still millions of dollars more than I ever imagined my house would be worth. And, unfortunately, millions -- and millions -- more than the house actually was worth, even at the peak of the market. For some unfathomable reason, Zillow decided the antique Victorian in suburban New York City was worth as much as a beachfront estate in Southern California.
It wasn't. And the fantasy that it was didn't last long. Zillow cut the value more than 80% after I emailed site editors and asked them to help me find a buyer willing to pay close to what they claimed the house was worth.
Obviously, the super-inflated price was an error. But it was a mistake with benefits. Because once you see the value of your property climb unrealistically and then fall just as quickly -- even if it's only online -- you gain perspective.
You stop thinking about the equity you gained or the principle you lost, and you start thinking of your primary residence for what it is: A place to live.
If you're lucky, you can stay long enough to recoup what you paid. If you're not, as many of us have found out long before this housing bubble broke, you're lucky to get someone to pay enough to cover the remaining mortgage. Home ownership may still be an American dream... as long as you don't confuse the concept of shelter with investments.
And that makes reports like the latest Case-Shiller National Home Price Index a little easier to swallow. Home prices in the nation's largest American cities fell 4.2% in the first quarter, pushing past a low set during the worst of the Great Recession and eliminating all hope for a quick recovery in the housing market.
Prices fell below the previous bottom set in April 2009, confirming a much-feared double-dip in home prices across much of the nation. "Home prices continue on their downward spiral with no relief in sight," David Blitzer, chairman of the S&P index committee, said today.
Twelve of the 20 cities tracked by the index posted fresh lows in March: Atlanta; Charlotte, N.C.; Chicago; Cleveland; Detroit; Las Vegas; Miami; Minneapolis; New York; Phoenix; Portland, Ore.; and Tampa, Fla. Other than Washington, D.C., all of the major cities tracked by the index posted a year-over-year decline.
Nationally, house prices are back to their mid-2002 levels. If you adjust for inflation, prices are back to late 1999 levels. And it's still getting worse. "We expect house prices to drop at least another 5% before turning around in 2012," says Patrick Newport, an economist at IHS Global Insight.
Falling house prices damage the economy in several ways. As Newport explains:
They reduce wealth, which reduces consumer spending. They squeeze builder profits, which reduces housing starts. They force lenders to tighten lending standards, since the collateral is depreciating in value off the bat, reducing existing home sales. They reduce state and local property tax collections, resulting in spending cutbacks. They raise the level of uncertainty, which has made an increasing number of Americans think twice about participating in the housing market. Finally, they lead to more foreclosures, which in turn lead to further declines in house prices, which lead to more foreclosures, and so on.
And on and on. At some point, the market will recover. Prices will stabilize. Those of us who managed to hold on to our properties may even make a profit. In the meantime, losing so much money has never been so easy.