Housing Hit Bottom This Past Spring

The Case-Shiller Housing Index's April value was essentially the same as its March value. In the context of the other housing data we have, we can stop wondering whether housing hit bottom this spring -- it did.

Recall that the Case-Shiller index is a 3-month moving average, so this result may indicate that the pure April data showed higher prices than did the February and March data.

Sean MacLeod kindly provided this graph comparing various indices, although here it is hard to see that the CS March-April decline was indeed small.

Click to enlarge:

Below is my chart, which expresses housing prices as a ratio to construction costs, and shows them together with construction activity.

Click to enlarge:

Comments

[Jimmy K:]

Krazy with a capital K. How anyone would go out on a limb and say housing bottomed in April is beyond me...?

Casey- I don't need graphs, charts, etc to see what is going on in my neighborhood... this is far from over...

www.oftwominds.com/blo...

Jul 01 07:05 AM

[zorro6204:]

Blithering nonsense. There's a vast pool of hidden inventory that will hit the market in the next 24-36 months. Also note that in most bear markets there was one quarter of positive GDP growth that turned out in hindsight to be a head fake. With foreclosure moratoriums and the shear load of foreclosure paperwork to be dealt with, it's possible for prices to shift a little on a month to month basis. But housing prices overall will be down, maybe through 2012. It's just basic math, supply and demand.

Jul 01 08:49 AM

[swalter:]

what's even more amazing than your conclusions is that you are identified as an economist; I hope your conclusions are merely the result of an agenda and not your real analysis.

Jul 01 08:53 AM

[Dave Wrixon:]

In China certainly, in the UK perhaps, but the US, you have got to be kidding!

Jul 01 08:57 AM

[Peter Iwano...:]

Thanks for assuming that your neighborhood is representative of the entire US housing market.

I'm sure Casey's graphs of the US housing market don't model anything about the...US... housing market?

Just like at the top when everyone is talking about how this time is different and prices can only go up, the bottom is when everyone is clamoring about the end of the world and that prices can only go down.


On Jul 01 07:05 AM Jimmy K wrote:

> Krazy with a capital K. How anyone would go out on a limb and say
> housing bottomed in April is beyond me...?
>
> Casey- I don't need graphs, charts, etc to see what is going on in
> my neighborhood... this is far from over...
>
> www.oftwominds.com/blo...

Jul 01 09:06 AM

[Ali Mogharabi:]

Low mortgage rates in April 'stabilized' decline in house prices, but that was only in April. Just watch what we'll get for May, but specially June. By the way, today's MBA Mortgage Application Survey hit a YTD low! That index has been going down and down since rates recovered in early May.

Jul 01 09:09 AM

[Mad Hedge F...:]

Please stop. Since I have been pelted daily with predictions that residential real estate has bottomed for the last 18 months, like hail in a Midwestern summer thunderstorm, I feel a public duty to tell you that is just not the case. Now that the state and federal moratoriums are off, foreclosures are accelerating. There are over a million Option ARM and Alt-A loan resets about to hit the fan. Since many owners will not see positive equity in their homes in their lifetimes, banks are seeing more walk always. The run up in mortgage rates from 4.5% to 5.5% has yet to hit the market. Some 18 million homeowners divert 50% of their incomes to pay for housing, double the 25% that is considered healthy, and many of them are losing jobs. While the volume of units sold has rebounded, the action is dominated by speculators, flippers, and bottom feeders bidding for properties at 10-40 cents on the dollar, not exactly a sign of health. Call me when Ozzie & Harriet Nelson come back to the market. I listen to industry insiders call the bottom of the Japanese real estate market for 15 years, until they finally died, and the market is still a fraction of its 1990 high. I thing we are closer to the bottom than the top in terms of price, but closer to the top than the bottom in terms of time. You can take that to the bank.

Jul 01 10:08 AM

[Russ Wetherill:]

The problem with looking at the Case-Shiller index to predict future prices is that it only shows what the prices were 2 months ago - it tells you nothing about the prices two months hence.

There are a number of data sets that are more predictive of future home prices: unemployment, mortgage delinquencies, foreclosures, and months-supply.

The first three of these are sharply upward during the last two quarters. The months-supply is down in many markets as is typical during the peak spring selling season. The federal and state foreclosure moratoriums have also decreased the supply of foreclosure homes entering the supply chain thereby lowering the months-supply. RealtyTrac also has shown some evidence that REO properties are slow to list after foreclosure, further decreasing the supply.

So the only evidence to support a market bottom claim is the housing price index, which is a trailing indicator. All of the leading indicators show home prices should drop precipitously in the next 12-18 months.

And the "three-month moving average" business? Please. Everyone knows that prices go up in April. April prices are always greater than March. There is gravity. We get it.

One more observation: historically, Los Angeles home prices fell for 14 consecutive months from Feb 1990 to Mar 1991 before increasing from Apr 1991 to Aug 1991. Was this a recovery? Not quite. The home price index then fell for 33 more months until Jun 1994. Recovery now? No, still no recovery. The housing prices then see-sawed for the next 33 months with only 12 months of price appreciation and 21 months of price depreciation during this time. The housing prices in Los Angeles did not show sustained price appreciation until the dot.com bubble began in Mar 1997. This was a full six years after the first "green shoots" started to appear. Where did I get this data? From the very Case-Shiller index that the author cites in support of a housing bottom.

The peak unemployment in LA in the 90's never broke into double digits. Right now the U3 unemployment is 11.5% and headed higher.

Jul 01 12:02 PM

[Ted Hurlbut:]

I believe we're in a bottoming phase overall, but the housing market is likely to be a drag on any recovery. There's still too much inventory and unemployment is driving fresh foreeclosures. Housing may have led us into this, but it's not going to lead us out. And the anticipated problems in the commercial real estate market will only increase the headwind.

www.hurlbutassociates.com

Jul 01 12:59 PM

[Fred Voetsch:]

Actually your logic suggests that housing hit bottom back in 2006 and again in 2007 and I have little doubt that that is exactly what you stated at that time.

One only needs to read your past comments to see that you are a non-critical-thinking bull who can only see the glass as half full.

Jul 01 01:56 PM

[puzzled by ...:]

Interesting view; no mention of the moratorium on foreclosures and the lowest interest rates in years that are inching up, which provided a temporary reprieve.. nor the still more than double the average supply, with a shrinking demand (based on financial access), etc. No offense, but I don't know who is dumber... you... or me for bothering to read your propaganda. Honestly, Casey, who are you trying to fool? You can't actually really believe this and pretend to study the industry? I'm with Mad Hedge, and from the looks of it, no is else thinks you have much insight to offer that isn't subsidized by the NAR

Jul 01 02:13 PM