Housing Decline Slowing? Wishful Thinking (Case-Shiller)

You might have thought house price declines were slowing. I certainly had hoped so. The latest data from January 2009 from the S&P/Case-Shiller index suggests this is wishful thinking as year-on-year declines hit another record of 19%. The decline was not only steep, but very broad-based.

Data through January 2009, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 13 of the 20 metro areas showing record rates of annual decline, and 14 reporting declines in excess of 10% versus January 2008.

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House prices declined in every single market from December to January. This has been true for each month since Lehman started the latest phase of the credit crunch. We are now down 30% from the peak. Hardest hit are the former bubble markets in Phoenix, Miami and Las Vegas. San Francisco and San Diego have also lost more than 40% peak-to-trough.

I had said previously that I expected price declines to slow. The data are not supporting this contention. Therefore, I am moving to a more negative view of the U.S. residential housing market.

Given these types of price declines, it calls into question the assumptions by the Obama Administration regarding the worth of so-called toxic assets now at the heart of their plan to end the credit crisis. Certainly, if this type of price activity continues apace, residential mortgage related assets will continue to fall in value. Meanwhile deterioration in commercial property and credit card markets guarantee further writedowns at banks in the U.S. and elsewhere.

While I had said I do not foresee an average U.S. house price decline greater than 50%, I am not willing to make this statement. House price declines are accelerating, not decelerating.

Source: The New Year Didn’t Change the Downward Spiral of Residential Real Estate Prices According to the S&P/Case-Shiller Home Prices Indices (PDF) - S&P website

Comments

[thannagan:]

You may well be correct, but its difficult to disern near-term changes on an eleven year chart.

Apr 01 11:40 AM

[Radardoc:]

I think you are pecisely correct. Now that the sub-prime loans are being digested, we are now facing the looming reality of Alt-A and other adjustible paper getting ready to re-cast. Much of the money jumped from the residential to commercial arena, but that's like moving from the bow to the stern of a sinking ship. Were still sinking.

The credit market has rightly gone back to looking for conservative terms with large down payments and, get this...being able to afford the loan! What a concept!

With unemployment going up and negative equity becoming commonplace, where is the pool of buyers? Nowhere. Demand goes down, supply is increasing, it doesn't take an economist to solve the equation...PRICES ARE DRIVEN TO THE BASEMENT.

If we allow the banks to leave "mark to market" standards and start "mark to fantasy," (and we know how good that was for Enron)thats the only path I see.

Please, someone, I want to be wrong...

Apr 01 01:32 PM

[Griz:]

You can see a temporary flattening in the rate of decline, i.e. the second derivative, since January (that must be what all of the excitement is about). But this is exactly what we saw during the Jan - Apr period in 2007. This leads me to believe that it is just a temporary seasonal slowdown in the rate of price decay... going into the summer and fall months I think we may re-accelerate to the downside.

Apr 01 03:10 PM

[ArnoldCountry:]

Well done... in my 30 years as a real estate broker I have seen difficult recessions and this is proving to be the worst that I have seen... but I am not a doomsday beleiver either. This will eventually pass... as they always do. However, I completely agree with you that the data is showing that we have further declines ahead and where it goes nobody knows. Aside from most who make their living selling real estate (I dont, I am involved in litigation now) who believe no better time to buy now (urgency - a sales tactic), we will see a bottom sometime and we will be there for a while... as history has shown. I would expect that we will see a blip up this spring and summer in sales but inventory will still climb as foreclosures continue to accellerate. We cant focus on just one number, but both... inventory climbing and sales.

Apr 01 03:55 PM

[Mad Hedge F...:]

Be happy you don't live here. Yuba County, California, a semi rural area in the Sierra foothills commuting distance from Sacramento, has the highest underwater rate in the nation. There, 78% of all homes have larger mortgages than the houses are worth, and the numbers are rising. Four out of the five highest negative equity counties in the US are in the Golden State’s Central Valley.

Apr 01 04:23 PM

[John Wake:]

Edward, A ground zero market like Phoenix has a strong seasonal aspect to it. January is usually the worst month reflecting slow sales during the December holidays. We'll very like see a much smaller decline in the February Case-Shiller Index for Phoenix and we may very well see little or no decline for March.

I assume markets like Phoenix and Las Vegas are boat anchors on the Case-Shiller Composite 20 Index and if those and similar markets indeed flatten out we'll have a whole new ball game. We could see a lot of popular press stories about hitting the bottom in June after those March numbers come out. (It may not be the absolute bottom but if it isn't, at least it will show we are getting close.)

Apr 01 07:09 PM

[aware:]

Its a lie don't get sucker.Get the guns and get ready.Can you handle the real world?

Apr 01 08:38 PM

[jstratt:]

I agree with the author that the housing data was uniformly bad.

However with mortgage interest rates dropping 1.5% from last December I believe the data that comes out for March will show we have stopped declining in many or most areas.

We have a rare time when mortgages are cheap and prices are lower. Let me suggest that we have increased the affordability by perhaps 20% in the past couple months.

After seeing Case Shiller I wouldnt blame anyone for disagreeing with my assessment however.

Apr 01 08:54 PM

[HardwoodFlo...:]

Of course prices are falling! Look at what people are buying- foreclosed homes and people who "have" to sell. Moreover the sales are happening in the overheated markets where prices have Fallen from 30-70%. Bottom feeders will seep-up the inventory over the next several months so prices will continue to fall.

Moreover, jumbo loans are impossible to get and still expensive. So the big ticket stuff isn't on the market.

There is a fair amount of backside demand out there. I agree that the job market needs to stabalize before a housing "recovery" takes place.

The truth is that 400,000 units of single family homes is a pitance of a pace for residential housing. While the remodel numbers have been in the tank for the past 3 years, as home equity lines were the first to go, people are just begining to spend real income on their up grades. I think you will see a uptick in home remodel as the consumer (M2-M3 Money Supply) retrenches.

Still, new housing contruction won't take hold for a while. When it does, there will be lot of catching up to do. Specifically, the fact that housing starts have never been this low for this long ever. It's like the remodel factor. For a while it's like pushing rope, then the slack goes out and there will be a whiplash.

The economy is so different than it was in the past. the huge amount of government workers, health care representing 30% of GDP, tech, manufacturing and the rest is so much broader now. In a way this whole cycle has seemed a bit like Y2K- with experts telling us to buy gold, stock pile guns and prepare for civil unrest- it's just crazy.

Will there be a "fast" housing recovery- no. Will there be one-yes. Will it be a more senseable recovery- yes. By all acounts 1MM single family units is below demand. That's a 100+% increase from where we are now.

Apr 02 06:02 PM