Can We Expect a Springtime Bounce in Housing Prices?

Punxsutawney Phil saw his shadow last week, “so 6 more weeks of winter it will be…” Seems it’s been a nuclear winter in most housing markets for a couple of years now. But, when Spring finally does arrive, it’ll bring the annual seasonal optimism for the real estate market called the “Spring-time bounce.”

A couple of problems though - not all markets experienced a bounce in recent years, and the “bounce” in some markets has proved only to be brief pause along the way to lower price levels. Examining weekly price and inventory observations in a couple of key cities reveals that metro areas have also responded differently to the start of Spring.

Chicago, IL

Chicago illustrates the classic case of the Spring-time bounce – a break in declines each Spring before falling to lower overall prices levels. Recent weeks are showing signs of stability, but inventory levels have risen significantly throughout the Spring in 2007 and 2008:

click to enlarge

Boston, MA

There’s a similar trend emerging in the Boston MSA (using the larger MSA because of the relatively small size of Boston’s city-wide market) – downward price movement throughout 2007 and a bit of bounce in Spring 2008 that’s starting to look less like a bounce and more like stabilization.

At the annual American Economics Association conference in San Francisco this month, Karl Case presented his paper “How Housing Busts End: House Prices, User Cost and Rigidities During Down Cycles.” During his presentation, he suggested that Boston was in the 12^th quarter of its down cycle which has looked very similar to the last negative cycle in the Boston market about a decade ago which lasted 14 months. Is this the beginning of the end there? The condo market in Boston is certainly strengthening:

San Jose, CA

The San Jose market shows a continued price level rise through 2005 and into mid-year 2006. Then the rains came… Since July 2006, there’s been a persistent downward price trend going into February 2009, even after an adjustment in the current supply (likely due to foreclosures and short sales). If inventory levels bounce again this Spring as they have in each of the past four years, there’s a good chance that price levels will miss the bounce again this year:

Los Angeles, CA

Los Angeles looks like it may be trying to find some stability in the early selling season this year. Inventory levels have shown a relatively consistent decline since rising sharply from January 2007 to July 2007, so perhaps there will be a Spring-time bounce this year that was missed in 2008:

Expanding a look at the data to the entire Los Angeles Metropolitan Statistical Area (MSA), aggregating Los Angeles County and Orange County, the price and inventory trends in the City of Los Angeles are mirroring the MSA-level trends. There’s some visual evidence that the market may take a breather this Spring, but as is the case in San Jose, a rise in supply levels this Spring could result in a short-lived break in the downward trend:

Seattle, WA

Seattle will be happy to know that it’s a more peculiar case. After showing price appreciation through the end of 2006, there’s a consistent downward trend throughout 2007 with no clear Spring-time bounce – some stability in early 2007, but certainly not a bounce. There’s a temporary recovery in early 2008, followed by a free fall going into 2009. Inventory levels are on the rise, only breaking temporarily at the second half of each year since 2006 before rising to new peaks by the following years’ late summer time period. Judging by early inventory levels in 2009, it looks like supply levels will rise again this year which doesn’t bode well for price levels:

As each week passes and Spring season heats up, it’ll be interesting to see how each of these and other metros respond to the Spring-time bounce, mortgage rates, the economic stimulus package, and mortgage market bailouts. Let’s see if Puxatawny Phil is right – the market looks to be changing every week and February could be a pivotal month as an early predictor of this year’s market.

Disclosure: No positions.

Comments

[Sean in CA:]

no.

Feb 10 08:07 AM

[Tom Armistead:]

Interesting article.

I would be interested in knowing how you selected the intervals to scale price on the left vs.inventory on the right.

Feb 10 10:06 AM

[Fred Voetsch:]

Long term trends in demographics suggest that housing is a falling knife for a decade or two to come just as it has been an inflating bubble for decades due to demographics.

The best minds in the business, in particular, Meredith Whitney, say that housing has a long ways to go on the downside and I believe her rather than a few charts of specific areas and time frames.

Feb 10 01:03 PM

[Scott Sambucci:]

Hi Tom - The scales are chosen automatically by our charting tools here at Altos Research. These graphs are not intended to be used as a strict supply and demand curve - simply to show relationships between these two key housing market stats. That is, you can ignore the point of intersection between the two curves.


On Feb 10 10:06 AM Tom Armistead wrote:

> Interesting article.
>
> I would be interested in knowing how you selected the intervals to
> scale price on the left vs.inventory on the right.

Feb 10 03:06 PM

[AndrewBaker:]

I'm with Sean and say "no." Prices are still too inflated and besides that, who can get the mortgage they want or want to risk it anyway? Realtors talk the housing market up like brokers talk up the stockmarket and politicians urge us to vote: yet none of them produce a goddam thing!

Feb 10 03:47 PM

[Mr. Ed, Jr.:]

I don't think charts can tell the story this time.

First, those who have paid off all or much of their homes seem to be willing to stay put. They, and most potential buyers, just do not trust anything about the housing market at this time.

To buy a house now, if credit can be obtained, a substantial downpayment is needed. If the buyer is selling their home to buy another, because there may not be any equity left, there is a good chance they will additionally have to come out of pocket to pay the sales commission. And probably the closing costs, since this is such a tough selling market. Add in the costs of moving, too.

The charts may show that housing is returning to proper ratios to income, or whatever metric is being used. But they don't show how wiped out the consumer is, or how afraid of squandering money the American consumer has become. This is a drastic change from anything most of us have ever known in this country. (After 9-11, our President told us to go shopping. That seems like it was a different lifetime)

As this economy worsens, that just makes the housing market almost comatose.So housing prices fall even more, and potential buyers say "Let's wait a little longer and see how low it goes".

There is nothing on the horizon that will likely change things for the better.

Feb 11 02:10 AM