More Signs of a Housing Bottom

The National Association of Realtors (NAR) released its quarterly metropolitan home sales report yesterday, and I found some bullish undertones in it.

While most people are focusing on the continued large year/year price drops, I have not heard anyone focusing on the fact that most cities showed sequential (qtr/qtr) price gains for the first time in roughly 2 years!

For the country as a whole, median sales prices rose +4% in Q2 vs. Q1 of this year. The median home price in the U.S. rose to $174,100 (which is still -15.6% below year-ago levels). Here are some of the largest quarterly increases for some notable cities:

• San Francisco (+18%), Boston (+16%), Washington D.C. (+14%), Dallas (+11%), and Chicago (+10%).
• Additionally, some of the cities that have been most cited for outsized speculation in recent years have also shown renewed stabilization: San Diego (+5%), Los Angeles (+3%), New York (+2%), Phoenix (+1%) and Miami (+1%).

We know that one datapoint does not make a trend, but I also know that these quarterly sales prices have been dropping every quarter since mid-2007. So this bounce is notable, and from here we'll just have to see if the trend is sustainable.

Hopefully home prices have now fallen sufficiently from their prior highs, up to 50% in many cities, that buyers feel better about stepping up. The low mortgage rates and first-time buyer tax credits should continue to bolster demand as well.

Here is a look at some of the year/year price declines in some of those notable cities I mentioned:

• Boston: -8.3%
• Chicago: -20.7%
• Dallas: -0.2%
• Los Angeles: -25.7%
• New York: -16.3%
• Phoenix: -36.1%
• San Diego: -20.2%
• San Francisco: -33.8%
• Washington D.C.: -14.0%

Two other notable cities that are still seeing declines are Ft. Myers (-52.8%) and Las Vegas (-39.7%).

Overall, home prices have fallen by record amounts in nearly all cities. For the first time in roughly two years, we are seeing a sequential uptick in home prices.

With the home affordability index near multi-decade highs, the odds are increasing that this single datapoint of rising home prices could further cement the notion that housing has bottomed, and that would have positive implications for home prices, consumer confidence, personal spending, as well as the overall economy and stock market.

Comments

[OptimizedPrime:]

"The National Association of Realtors (NAR) released its quarterly metropolitan home sales report yesterday, and I found some bullish undertones in it."

That's a good one. How about:

"The National Association of Oil Companies (NAOC) released its quarterly metropolitan home sales report yesterday and, shockingly, it came out in favor of continued dependence on fossil fuels to power our nation".

Apologies in advance for a personal attack, but what are you, STUPID or something? Of course the NAR is going to paint the most rosy picture possible. They always do this, except when they are whining to Congress for more handouts for their members in the form of government-subsidized financing ("conforming" loans) rigged appraisals and other forms of legalized fraud.

The median price jumps are due to the fact that higher-end houses are finally starting to drop and thus there is more activity on that side of the spectrum, thus inflating the medium sales price. Case-Shiller prices are quite another story as this shows real buy/sell pairs. That will show continued carnage.

Then it will get worse as there are a zillion resets (recasts) coming which everybody agrees will send foreclosures through the roof, and there have been several studies showing that the next wave is going to finally hit the HIGH END.

Then a zillion more houses will start to come out of bank-owned purgatory and keep the market supply saturated for the next decade.

Then all of the Baby Boomers will retire and move into smaller houses farther away from everything.

Then the upgrade market for bigger houses will be non-existent as existing equity (the primary driver for upgrades) is all gone.

Somewhere in there all of the government's temporary measures to artificially prop up the market will have to come to an end.

Etc. etc. etc. etc.


OP

Aug 13 01:51 AM

[j-dub:]

May I make a request?
Please recommend this post if you, as an SA reader, feel the two words, housing and bottom, should not be allowed together in the same title until, oooooooooooooohhhh, let's say April 2010.

Hmmmm...........my guess is this author has called 10 of the last 8 bottoms in housing.
I'm not sure what his agenda is...has he tried to catch a falling knife with a couple of "investment" properties? Did he buy over his head in 2002 and is praying he stays above water? Is a dear relative of his in financial distress?

Not sure, but every month is a bottom and every sputter is a roar.

Does he know that unemployment (U3) will fall between 10%-13% and that there is another wave of....
Never mind.

Enough already- I'm beginning to believe that these authors ignore all forms of reality just to be able to put those two words in the title!!!!!

Aug 13 02:10 AM

[markfl:]

I agree with the previous two comments. Let me offer a slightly more balanced view, in chart form www.usatoday.com/money...

Another factor is that a number of states of changed their processes for foreclosure. Foreclosure is fundamentally a state courts issue. These cash strapped states really aren't in a position to handle the civil filings, given that the legislatures are hard pressed to fund the clerks of the courts and judicial processes. www.reuters.com/articl...

History suggests it may take a bare minimum of five more years for the national home price values to recover.

Aug 13 04:35 AM

[Tack:]

I'll just riase this question for all the perpetual pessimists to ponder: why would the single biggest winner of the financial collapse, John Paulson, be making his biggest upside bets with BAC, regional banks and gold? (Regional banks, remember, make all their money on commercial building loans and mortgages.)

The answer is that the upside potential is far greater than any remaining downside risk, and the huge influx of printed money into the economy virtually assures inflation, so "hard goods" (houses, too, will get inflated in nominal terms).

Also, the idea that housing demand will fall because of baby boomers is, again, misplaced. The population keeps expanding nonstop, and they all have to live somewhere. As long as GDP returns to growth, which of course it will, housing demand is as inevitable as the sun coming up.

It's very difficult to make money being a pessimist unless you exercise that view, as Paulson did, at market tops, which few ever do.

Aug 13 11:14 AM

[dacolan:]

"the huge influx of printed money into the economy virtually assures inflation"

Consumer credit outstanding, 10-year treasuries vs. consumer credit, CPI vs. consumer inflation, consumer spending vs. consumer credit and the record slide in bank lending all show deflation.

tinyurl.com/ph3g9n

"As long as GDP returns to growth, which of course it will, housing demand is as inevitable as the sun coming up."

The question isn't whether or not housing demand will return, but how long it will take to return to nominal demand conditions. As long as unemployment and default rates continue to rise, the obvious answer is, "No time soon."

Aug 13 12:53 PM

[Tack:]

On Aug 13 12:53 PM dacolan wrote:

> "the huge influx of printed money into the economy virtually assures
> inflation"
>
> Consumer credit outstanding, 10-year treasuries vs. consumer credit,
> CPI vs. consumer inflation, consumer spending vs. consumer credit
> and the record slide in bank lending all show deflation.
>
> tinyurl.com/ph3g9n

There will be no deflation in the economy, in nominal terms, something that today's naysayers seem incapable of understanding, while still awaiting 1932. The flood of capital will raise the price of anything, and everything, some sooner, some later. Even now, we have had no deflation in the prices of anything, save houses. The CPI doesn't go down, gasoline doesn't go down, food doesn't go down (in fact, it's spiked). Nothing's collapsing in price.

One can point to what "should" be deflationary, but money printing trumps it all. That's also why gold and commodities rise, because the market can anticipate the inflationary policy effects.

Worry about inflation, not deflation.

>
> "As long as GDP returns to growth, which of course it will, housing
> demand is as inevitable as the sun coming up."
>
> The question isn't whether or not housing demand will return, but
> how long it will take to return to nominal demand conditions. As
> long as unemployment and default rates continue to rise, the obvious
> answer is, "No time soon."

One doesn't need a return to "nominal (normal?) demand" when share prices are priced for catastrophe. That's the second misunderstanding. Even so, we are seeing housing volume increase month after month and even prices rise in many markets and Case-Shiller, overall, last month.

And, default rates are not the predictive items; it's delinquency rates that demonstrate more immediate, rather than past, difficulties, and these have been improving, as of late.

Aug 13 05:54 PM

[NEOblogger:]

Clearly there are 2 views here- that's what makes a market! However what we should all be concerned about is the reliability of the data we use to inform / justify our opinions.

House price data is actually Average House Price Data, which leaves it incredibly open to wild swings as the proportion of deeply discounted foreclose sales goes up and down. If the proportion of foreclosures and short sales spikes up (to above 50%) over the coming months as projected by the latest Realty Trac data on foreclosure notices served in July (up to record levels) then the average prices will be pushed down. A higher proportion of sales will be being made at lower prices. Similarly in areas with fewer foreclosures the prices will swing up.

With Federal tax incentives and the disproportionate spread in rates between conforming and jumbo loans, the lower part of the market is starting to become a little bit liquid while higher priced properties are still frozen. As a result the only higher priced properties that are selling are those that are deeply discounted by distressed sellers, once again distorting the data.

The data of house sales is not giving you a real picture of the market. It is the average that is moving not real prices - it is a data effect not a market one. Sadly, until we get through the foreclosure effect, which could be years, this data is going to wholly unreliable, no matter how may times the realtors spin it.

Aug 13 06:38 PM

[Jordan Kahn:]

I have no "agenda", nor have I tried to call the bottom in housing ONCE! I have watched prices fall relentlessly for over 2 years, and while I think prices will likely languish at low levels for awhile, I think the worst of the price declines has probably passed. That's all. Just an observation. Ping me next year and we'll see who is right--


On Aug 13 02:10 AM j-dub wrote:

> May I make a request?
> Please recommend this post if you, as an SA reader, feel the two
> words, housing and bottom, should not be allowed together in the
> same title until, oooooooooooooohhhh, let's say April 2010.
>
> Hmmmm...........my guess is this author has called 10 of the last
> 8 bottoms in housing.
> I'm not sure what his agenda is...has he tried to catch a falling
> knife with a couple of "investment" properties? Did he buy over his
> head in 2002 and is praying he stays above water? Is a dear relative
> of his in financial distress?
>
> Not sure, but every month is a bottom and every sputter is a roar.
>
>
> Does he know that unemployment (U3) will fall between 10%-13% and
> that there is another wave of....
> Never mind.
>
> Enough already- I'm beginning to believe that these authors ignore
> all forms of reality just to be able to put those two words in the
> title!!!!!

Aug 14 11:54 AM

[dacolan:]

"One can point to what "should" be deflationary, but money printing trumps it all. That's also why gold and commodities rise, because the market can anticipate the inflationary policy effects. ... Worry about inflation, not deflation."

It's difficult to envision inflation against this hugely deflationary backdrop across a wide array of industries. Where are the wages going to come from to support inflation?

"Even so, we are seeing housing ... prices rise in many markets and Case-Shiller, overall, last month."

Prices are down on a Seasonally Adjusted basis for both the Composite 10 and 20 indexes, and prices fell in 12 out of the 20 Case Shiller markets.

tinyurl.com/obbn2s

Aug 14 12:22 PM

[dacolan:]

"Even now, we have had no deflation in the prices of anything, save houses. The CPI doesn't go down, gasoline doesn't go down, food doesn't go down (in fact, it's spiked). Nothing's collapsing in price."

from Calculated Risk (8/14/09):
Over the last 12 months, CPI has fallen 2.1 percent, the largest 12 month decline since 1950.

tinyurl.com/optwwl

Aug 14 12:31 PM

[mbear:]

Interesting how the housing bottom articles generally end with a comment such as "now if only prices would stop declining. Yes the worst hit areas are closer to the bottom and price declines in those areas are likely done given the outsized benefit of a purchase versus rent in those area. But I don't think anyone in this blog lives in Fontana, CA. Dataquick often attributes portions of price declines as based on demographics of homes sold versus actual price declines. The reality is it only takes a few conforming jumbo or larger sales to push the median up a couple percentage points since they barely represent double digit percentages of overall sales in some areas like S. CA.

Catch your knife if you intend to buy a decent home and I'll give you 100:1 odds that you'll be down money at this time next year. Don't worry though you'll be back to even in 4 or 5 years. Its all relative and prices in middle and upper middle class urban areas may "seem" cheap compared to 2 years ago but have quite a ways to fall. Nothing goes to the extremes we saw in this boom and simply retreats to trendline. ( even trendline is a ways away)

As I often said during the runup after dropping out of the bidding process for a house. Thats not how you buy real estate, you may think I'm an idiot now ('04) for not understanding the momentum opportunity but you'll really think I'm an idiot when I finally do buy since it will be so out of favor.

WSJ had its first article last week showing some cracks in people's conviction in home ownership. "The New American Dream: Renting"

Aug 20 04:09 PM