Case-Shiller Housing Numbers: The Rate of Decline Is Decreasing

Case-Shiller is out with its February numbers. The positive spin is that the rate of decline is decreasing, the bad news is that house prices are still declining. Here is the table:

Since I live in Phoenix right now which is more of less ground zero for this implosion, let me offer a couple of comments.

I keep hearing reports from bottom fishers around town that the action at auctions is fast and furious. Some of the more disciplined buyers report being outbid. I don’t have any firm numbers but I suspect there is some fairly aggressive investor activity in the market, which raises a question. Are we painting ourselves into another corner?

No doubt a lot of these investors would like to see a quick flip. I think the prevailing logic is that they are buying below market and will see a sharp upward adjustment in prices as the inventory is absorbed. There is a lot of hope that sales levels revert to mean in that assumption. But are they as a group creating a market overhang that’s going to act as a cap on prices.

I don’t think this group of investors represent as much of a foreclosure risk as the group that bought a few years ago — these buyers should be able to eke out some cash flow — but they might very well see their investment horizon stretched.

The other comment I would offer is purely anecdotal, so take it for what it’s worth.

I live in more of less the central part of Phoenix. It’s an area that hasn’t suffered greatly from the housing crisis and encompasses some very high income neighborhoods as well as some upper middle income areas. Over the past couple of weeks I’ve noticed a striking number of retail vacancies cropping up throughout the area.

The companies that occupied these properties were well established businesses with a regular clientele. Many had been in business for decades serving the locals. They were places that you take your vacuum cleaner to be repaired or buy swimming pool supplies. It’s more than a little disconcerting and brings the severity of this recession a bit more into focus.

Enough musing. Let’s see if I can find something a little more focused to write about.

Comments

[Ricard:]

The key to the statement is that we've reached an 'inflection point'. In math, the inflection point (applied to a chart showing a decreasing trend) would signify that we have just passed the maximum rate of decline, and that the rate will now ease up a bit. It does NOT mean that things are going to look upward from here.

Anyone looking to buy a home could probably wait a couple of months, and still get a significant discount from prevailing prices, until we actually hit a bottom. This inflection point business merely means that people think we're half-way to the bottom. That's not really good news.

Apr 28 04:59 PM

[joethebull:]

The national housing trend is still downward, but there are many pocket neighborhoods throughout the US that have already bottomed and are now rising. Pricing is very specific to the area the buyer is targeting, so the best advice is to do the homework. Check out sales trends, comparable sales, and time on market for the past few months. At the same time, make the smallest down payment possible in case things change in the next few months.

On a personal note, I live in the San Francisco Bay Area, which has seen more volatility in housing prices than almost anywhere else in the US. I've been looking to purchase a house for a couple of months now, and things are heating up. Foreclosures go off the market within 10 days, and close within 30. Short sales are starting to be reviewed and approved by banks. Many homes receive 5-10 offers within the first week of listing, and on average there are 2-3 that come in at listing price or higher. In one case, the prospective buyer was willing to put 25% down and $25k over the listing price, and this isn't unheard of anymore.

Despite what the indicators show and the news reports, in some areas there are many buyers out there and they are hungry. Only time will tell if this is temporary before the next big downswing or if things are turning around.

Apr 28 06:14 PM

[D. McHattie:]

Do people understand what a bubble is?

When a bubble bursts, it does not immediately reflate. You can't pump air into a burst balloon.

There are still billions of dollars worth of 'liars loan' alt-a mortgages that have yet to reset and will perform even worse than subprime. You cannot even begin to think of a bottom when we have yet to pass the bulk of these alt-a resets.

Not to mention the hundreds of thousands of units of shadow inventory owned by banks but yet to be put up for sale.

Not to mention declining incomes and employment levels.

Anyone who points to the latest Case-Shiller data as an indication of a housing turnaround is really grasping at straws.

Apr 28 07:16 PM

[Griz:]

We are merely at the normal "Spring" inflection point. As soon as the Realtor-led selling season hype wears off (probably by June) housing prices will resume their crushing descent downward. I wouldn't even be surprised to se prices re-inflect downward yet again as the Option-Arm and Alt-A products begin to really hurt the upper end. Homebuyers, do yourself a favor an continue to wait. Housing is an incredibly slow-moving asset class, so don't worry that you will miss the bottom (it is still 2 - 3 years off).

Apr 28 09:09 PM

[damienhaas:]

How about the figures may be seasonal and the price may drop even further in March or even April? You cannot just look at one month and say "well we are at the bottom". Let's wait for a couple of month and see the price movement and also the Housing inventory.

Apr 28 09:31 PM

[Anthony B:]

It's going to be hard for a bottom in housing to come without a bottom in job numbers and an increase in wages.

Apr 28 10:39 PM

[John Lounsbury:]

We need to have a slowing of the price decline or we will seriously overshoot what would be the historical "normal" price range, which I have tried to define in articles earlier this year. We may still overshoot the "equilibrium" average price, which would be 10-15% below the end of February numbers, but if the rate of decline slows so that we don't get there for another 9-12 months, the landing on a bottom may be a little more gentle than if we just plummeted down through those levels this summer.

As others have commented, a few markets may be closer to a bottom than others, so trying to judge your local market based on national averages requires some caution. And if your market isn't one of the Case-Schiller composite markets, figuring out where you are is even more difficult.

Apr 29 12:33 AM

[ANTS:]

From an Australian perspective, house prices in the US appear to us to be dirt cheap for the size and standard of construction.

We sometimes think it would be worthwhile selling our home in Brisbane and moving to California, until we factor in health insurance.

Apr 29 12:56 AM

[Steven Hansen:]

if you look at the case-shiller data over time, you will note that the housing price declines are the highest in winter and lowest in late spring / early summer. this is the same upward bounce we had in dec 2006 (peak was may 2007), feb 2008 (peak was jun 2008), and now jan 2009 (peak ????).

the percent decline in jan 2009 was the largest since this depression began. putting any positive spin on this data will send more sheep to the ovens.

Apr 29 02:09 AM

[Charles Lie...:]

Phoenix is only part of ground zero for the housing crisis. The other three parts of ground zero include the Inland Empire region of Southern California, Las Vegas, and southern Florida. However, overall unsold inventories of new homes, as of March using seasonally adjusted data, showed yet another decline to 311,000 units, something like the eighteenth consecutive monthly decline and is now near the bottom of the range for such inventories over the past 40 years, despite the growth in the U.S. population. In other words, unsold new housing inventories are now low on average across the country. But with a substantial glut in the four badly overbuilt regions, the rest of the country now has a distinctly below average level of supply, which is why competition and aggressive bidding for housing is showing up in places like San Francisco. Moreover, since new construction remains severely depressed, inventories will continue to be run down, setting the stage for a pick up in housing construction in many, but not all markets, in the near future. I'd also expect the Case-Shiller data to continue getting less negative as prices flatten out, so the year-over-year comparisons follow suit.

Apr 29 09:02 AM

[mavericks:]

I own one of those "liar loans" in a market that has dropped 15% over the past year. I bought 2 1/2 years ago close to the top and I have my own business which is not doing as well as I would like. Does that mean I'm a prime candidate to default? Absolutely not!! First off, my reset would actually be LESS than what I pay now considering where LIBOR is. And second, even with a tough business environment and lower homes prices, I could service my mortgage for years with the savings I have accumulated over the past 15. I think there are more like me than you realize.


On Apr 28 07:16 PM D. McHattie wrote:

> Do people understand what a bubble is?
>
> When a bubble bursts, it does not immediately reflate. You can't
> pump air into a burst balloon.
>
> There are still billions of dollars worth of 'liars loan' alt-a mortgages
> that have yet to reset and will perform even worse than subprime.
> You cannot even begin to think of a bottom when we have yet to pass
> the bulk of these alt-a resets.
>
> Not to mention the hundreds of thousands of units of shadow inventory
> owned by banks but yet to be put up for sale.
>
> Not to mention declining incomes and employment levels.
>
> Anyone who points to the latest Case-Shiller data as an indication
> of a housing turnaround is really grasping at straws.

Apr 29 09:21 AM

[Ricard:]

You are a prime example of who the Fed's trying to support (and who the taxpayer is paying for).

Without the <1% funds rate, or the hundreds of billions the Fed has pumped into the bond markets to lower the long-end of the curve, you'd be another statistic.

Kudos on your savings though.


On Apr 29 09:21 AM mavericks wrote:

> I own one of those "liar loans" in a market that has dropped 15%
> over the past year. I bought 2 1/2 years ago close to the top and
> I have my own business which is not doing as well as I would like.
> Does that mean I'm a prime candidate to default? Absolutely not!!
> First off, my reset would actually be LESS than what I pay now considering
> where LIBOR is. And second, even with a tough business environment
> and lower homes prices, I could service my mortgage for years with
> the savings I have accumulated over the past 15. I think there are
> more like me than you realize.

Apr 29 10:52 AM

[optionsgirl:]

Please, explain how the increase in foreclosures attributable to lifting the moratorium will impact residential sales in these "ground zero" areas. Even if the volume improves, won't the prices be lower still?


On Apr 29 09:02 AM Charles Lieberman wrote:

> Phoenix is only part of ground zero for the housing crisis. The
> other three parts of ground zero include the Inland Empire region
> of Southern California, Las Vegas, and southern Florida. However,
> overall unsold inventories of new homes, as of March using seasonally
> adjusted data, showed yet another decline to 311,000 units, something
> like the eighteenth consecutive monthly decline and is now near the
> bottom of the range for such inventories over the past 40 years,
> despite the growth in the U.S. population. In other words, unsold
> new housing inventories are now low on average across the country.
> But with a substantial glut in the four badly overbuilt regions,
> the rest of the country now has a distinctly below average level
> of supply, which is why competition and aggressive bidding for housing
> is showing up in places like San Francisco. Moreover, since new
> construction remains severely depressed, inventories will continue
> to be run down, setting the stage for a pick up in housing construction
> in many, but not all markets, in the near future. I'd also expect
> the Case-Shiller data to continue getting less negative as prices
> flatten out, so the year-over-year comparisons follow suit.

Apr 29 01:41 PM