U.S. Housing Market: Down Trend May Be Slowing
Guest Author post by Steven Hansen, Publisher of Global Economic Intersection.
Econintersect is using the Case-Shiller data release to overview the home price situation as of December 2010. Generally, all home price indexes are trending down. Econintersect begins with the opening of the Case-Shiller’s press release:
Data through December 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 3.9% during the fourth quarter of 2010. The National Index is down 4.1% versus the fourth quarter of 2009, which is the lowest annual growth rate since the third quarter of 2009, when prices were falling at an 8.6% annual rate. As of December 2010, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down compared to December 2009. Both Los Angeles and San Francisco reported negative annual rates of return in December, leaving San Diego and Washington DC as the only two cities where home prices are increasing on a year-over-year basis, +1.7% and +4.1%, respectively.
Each home price index uses a different technique and is telling a slightly different story. Explanations vary on what is going on in the home real estate market.
CoreLogic: According to Mark Fleming, chief economist with CoreLogic, 2010 was a year of ups and downs as a result of the improvements brought on by the tax credits followed by the declines that occurred when they expired. “It was a bumpy ride which ended with a net gain/loss of zero. Despite the continued monthly decline in home prices and year-over-year depreciation, we’re encouraged that on an annual basis we’re unchanged relative to a year ago. Excess supply continues to drive prices downward, but the silver lining is that the rate of decline is decelerating,”
Case-Shiller: “We ended 2010 with a weak report. The National Index is down 4.1% from the fourth quarter of 2009
and 18 of 20 cities are down over the last 12 months. Both monthly Composites and the National Index are moving closer to their 2009 troughs. The National Index is within a percentage point of the low it set in the first quarter of 2009. Despite improvements in the overall economy, housing continues to drift lower and weaker.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Unlike the 2006 to 2009 period when all cities saw prices move together, we see some differing stories around the country. California is doing better with gains from their low points in Los Angeles, San Diego and San Francisco. At the other end is the Sun Belt – Las Vegas, Miami, Phoenix and Tampa. All four made new lows in December. Also seeing renewed weakness are some cities that were among the last to reach their peaks including Atlanta, Charlotte, Portland OR and Seattle, where news lows were also seen. Dallas, which peaked late, has so far stayed above its low marked in February 2009.”
NAR: Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”
Altos Research: [editors note – Altos Research’s data reflects January home prices] New listings hitting the market this year are down sharply so far, and the trend is markedly different from the tax credit years. Why? The bears will reach for the easy “it’s a double-dip” answer, but seems there are other factors at play.
In 2009-10, sellers priced more optimistically – setting their initial ask prices at higher levels and above the prices where homes exited the market – based on a combination of constrained supply, 2007-08 price correction, low interest rates, and the housing stimulus. That trend has now inverted:
Notice how new sellers entering the market each week in the bottom quartile (black line below) are pricing far below their counterparts already on the market, and well below the overall market ratio (orange line below). With this ratio moving down to the 70% range, do new sellers really think that their homes will sell only if priced at a 30% discount relative to their neighbors?
The answer might lie squarely on the “other housing supply problem” – it’s a matter of quality. In 2009-10, there far fewer distressed properties in the active market as banks struggled to push foreclosures through the pipeline. Properties are heterogeneous, and as distressed and foreclosure inventory enters the active market, it mixes in with non-distressed “normal” properties. This intermingling affects property values across the board and future transactions prices. We’ve seen this play out over the past two years:
Note that tomorrow, the NAR will release January home sales data. Recently the NAR has been drawing fire from most blogs for revelations their methodology has been overstating home sales since mid-2000’s. Econintersect has been silent on this controversy as we evaluate using comparisons YoY – and this revelation should not affect our analysis to date.
The NAR is no longer the only game in town to get data – we now have Case-Shiller, CoreLogic and Altos Research. As readers know, Econintersect’s objective is to correlate data – and try to rationalize differences.
The home price data clearly shows a downtrend – except for the NAR data which is still trending down but showing a plateau. The NAR methodology is different then the rest who try to correlate data (apples to apples) to like home sales. The NAR’s home prices are simply the number of homes sold divided into the total value of the homes sold. The difference could simply be that more higher value homes are being sold – or lack of inclusion of foreclosed properties which are sold outside of their NAR network.
This methodology difference between the NAR and the rest of the industry could be explained by the following Altos Research graph:
The above graph clearly shows the lower end of the market trending negative – while the overall trend is improving. As a higher price home can be worth several times a lower price home, this discrepancy will skew the NAR data.
Going forward, the short term trend is still clearly down. However, it appears that there may be dynamics in play which are beginning to moderate this downward trend.
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