The stock markets took another dive on Tuesday after Citigroup reported a massive $9.8 billion loss for the fourth quarter and the Commerce Department said retail sales fell 0.4% in December. The combination of those two developments erased yesterday's market gains and sent the Dow Jones Industrial average down more than 2% in late-afternoon trading.
More ominously for the housing industry, Citigroup, in an earnings conference call with analysts, said it was assuming another 13% to 14% drop in home prices nationally during the next eight quarters in calculating future losses in its loan portfolios. The bank estimates that prices will fall 6.5% to 7% in 2008 and 6.5% to 7% in 2009.
Citigroup's CFO, Gary Crittenden, explained during the call that the bank had hired an outside firm that, in collaboration with Citigroup economists, arrived at an "average real estate price reduction for the country," according to a transcript of the call published by The Wall Street Journal on its web site.
Combined with a 6.7% year-over-year decline in home prices posted in October by the S&P/Case-Shiller Home Price Index, the Citigroup estimate, if it proves correct, would mean home values will fall a total of at least 20% between 2005 and the end of 2009 on a national basis. That would imply much greater losses in the formerly overheated markets.
The news sent all the builder stocks down again, with the S&P home builder exchange traded fund (AMEX:XHB) tumbling nearly 3% at 3 p.m.