Home Prices Are Taking a Breather Before Heading Lower

Now that we’ve moved full throttle into the housing market’s Spring-time selling season, it’s interesting to look at ask prices in the market to see where price levels are headed in the short term. The Altos Research 10-City Composite Index, which tracks the Case-Shiller Composite-10 Home Price Index in real time, was effectively flat during the last month but still down 2.1% over the most recent three month period. This represents the first non-declining month since in the 14 months that we’ve been tracking the CS-10 city composite. Listing prices moved up or down by less than one percent for the month in 16 of 26 national markets indicating at least some level of stability.

Did I just say that prices are steady, and even up in some markets? Huh?

To think through this some more, the housing market, as many will attest, is bipolar –

1. Pre-foreclosure/Short sale/REO market - Properties that have been on the market during the slower winter months are likely to be homes that are in a “forced” position – owners are upside-down on their mortgage, facing foreclosure, or it’s a bank-owned property where the bank is attempting to clear the asset from their holdings.

2. Non-Distressed rest of the resale market - New listings entering the market in the Spring, while still including the ongoing inflow of foreclosure/short sale/REO properties, are composed of more “regular” homes selling because it's the Spring - the influx of seasonality to housing supply, with a larger percentage of new listings likely falling in the latter group which will fall into the upper 50-75% percentiles of the market. This assumes that distressed properties generally fall into the lower end of the market (Ed McMahon notwithstanding…).

Because these new listings are coming into the market at the higher price points, this would help to explain why overall median ask prices are holding steady in early 2009. Here’s a look at the same 10-City Composite supply by Price Quartile (Quartiles represent 25% of market supply):

There could be a compositional change in the market that is driving list prices higher with the recent inflow of inventory. Look at Los Angeles for example:

And Boston:

Two markets don’t make for the whole story, but they definitely lend some credence some compositional changes of the inventory mix.

Three other factors may be contributing to ask-price stability:

1. Sellers are crazy (as reported by the Dallas Morning News). On the other hand, there’s some evidence that sellers overvalue their homes by “only” 5-10% on aggregate.
   

2. Seasonality – Even down markets like Chicago regularly see price strength in the Spring:

3. The Housing Plan – Are sellers pricing in (perhaps overpricing) the expected effects of the Obama Housing Plan and the allocated tax credits for new homebuyers?

The question is whether or not the new listings entering the market are priced right by the sellers and their agents? If there is pent-up demand for properties in the non-distressed market segment for move-ups and new homebuyers, then prices should hold steady through the Spring. But, after the Spring season, will the downward decline continue? My conjecture is that home prices are taking a breather for reasons outlined here – seasonality, etc., with the projection that we’re heading to lower levels starting in the July 4 to Labor Day period and extending through the end of the year. The good news is likely to be short-lived.

Disclosure: No position.

Comments

[cynewulf:]

Nail guns pricked the housing bubble one nail at a time, millions of nails per second Allan Greenspan's Ph.D.'s did not see the nails coming. I still have my nail gun.

Mar 11 07:36 PM

[PainfullyAware:]

The Foreclosure Moratoriums, Endless Money From The Fed, and "Pretend" Housing Solutions are slowing the rate of decline for now.

None Of These Is Sustainable.

Housing is by no means "Almost Over" as an issue. We have until Feb 2011 before the "Silly Amount Of Resets" are reduced to a moderate level.

Enjoy the pause; do not be lulled into a sense of optimism and loose your money.

Mar 12 01:42 PM

[Griz:]

After the Spring and Summer comes the Fall which portends the coming of long, cold, dark Winter. Wait until all of the Alt-A and Option ARM resets begin to really kick in later this year and next... The breather in price declines is merely a latching point which will hold for a couple of months before resuming its long journey downward.

Mar 12 02:47 PM

[scotty1560:]

South Florida is a horror show. At least 50% off in land cost. Recently saw an Intracoastal lot sell for $415,000 after selling for 1.4 Million 2-3 years ago.
Look for at least 2 summers for a bottom then look
for another 4-5 years of sideways drift.

Speaking of South Florida, property taxes and insurance
and maintenance are now unsustainable for most owners.
Local governments have attacked the property angle while the FED goes after capital gains and income. States attack the sales tax angle. They have us blanketed and it no longer makes sense to own property here. Tax write off is not enough of a carrot.

Mar 13 01:16 AM

[Leonard C.T...:]

STIMULATE THE ECONOMY WITHOUT HUGE DEFICIT Thatis the title of the hotest article on the net. see at economysflaw.wordpress.../

Mar 14 01:38 AM