Saturday, January 3, 2009

US home prices plunged a record 19% yoy in October

Home prices in the 20 largest US cities plunged a record 19% in October 08 compared to a year ago. Compared to the previous month, Sept 08, they were down 2.2%. This is based on the Case-Shiller home price index released by Standard & Poor's of New York. David Blitzer, chairman of S&P's index committee noted that home prices are back to March 2004 levels.

Watch out for more troubles at US banks, including Citi. The US government's Nov 08 bailout package for Citi includes backing for US$306bn of property-related troubled loans and securities. But remember the fine print – Citi is responsible for the first US$29bn of losses. That can be quite easily incurred with just a 10% haircut on the US$306bn total; while residential property prices are already down nearly 20%. I'll bet Citi will be looking for more capital injections again this year.

There will be plenty more holes for Citi to fill. The US$306bn is only a small portion of Citi's total assets. Citi has another US$1.7 trillion of “assets” on its balance sheet, “assets” which include credit card, auto, small-business and personal loans. On top of that, there is about another US$1 trillion of “assets” not on the balance sheet (yet!) but in various special-purpose vehicles.

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