Case-Shiller: Home Prices Continue to Rise 19 comments
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By Dirk van Dijk
Yesterday, the S&P Case-Shiller index was released. The Composite 20 index (C-20), which covers 20 of the largest metropolitan areas in the country rose by 0.27% on a seasonally adjusted basis (home prices are seasonal, so the adjusted data is what you should be looking at -- most of the press makes a mistake by focusing on the unadjusted data, thus these figures might vary from what you read elsewhere). That was the fourth straight increase. The Composite 10 (C-10) index, which is a subset of the Composite 20, but which has a longer history, posted a 0.36% increase for the month.
On a year over year basis, the C-20 is down by 9.39% while the C-10 is down 8.53%. While it was an increase, it was a smaller one than was expected. The consensus of economists was looking for a C-20 year-over-year decline of just 9.10%. The data is for September, not October like most of the data that has come out recently.
The country was roughly split between areas where home prices increased during the month and areas where housing values continue to decline. Eleven metropolitan areas posted increases and nine suffered declines. Some of the areas with the biggest increases in home prices were a bit of a surprise.
In California, San Francisco saw the largest monthly increase of any city, enjoying a 1.71% rise. It was one of the areas that was considered "bubble central," but has started to stage a comeback. Over the last year, prices in the City by the Bay are down 7.85%. Similarly, San Diego posted a 1.05% increase for the month, and it is now down just 5.72% year over year. Long-depressed Detroit saw prices increase by 1.25% for the month, although on a year-over-year basis, home prices are still down by 19.26%. The other areas that saw monthly increases of over 1.0% were the Twin Cities, up 1.31%, and Chicago, up 1.11%.
On the negative side, the worst-hit city was Cleveland, which was down 1.20% for the month, although it is actually among the healthiest cities on a year-over-year basis with home prices down just 3.880%. Then again, the housing bubble was not centered on the beaches of Lake Erie, it was centered on the beaches of Southern California and Florida.
Las Vegas, which is the city that has been hit the hardest by falling home prices overall, continued to see prices fall, down another 1.19% for the month, and off 28.63% from a year ago. From the peak, home prices are down 55.4%. The only other city that comes close to that cumulative decline is Phoenix, down 52.0%.
Also keep in mind that the home price declines had lasted for far more than just a year. The graph below (from Calculated Risk) shows the cumulative decline from the peak pricing, which was hit in April of 2006 for both of the composite indexes, but is shown in the graph from each individual city peak. It breaks down the cumulative decline by time period, with the blue bar showing how much home prices fell through the end of 2007, yellow showing where things stood at the end of 2008, and blue indicating how far the city is now off its peak. Thus if the orange bar is shorter than the yellow bar, it means that city has actually seen home prices rise so far this year.
It is encouraging to see home prices rise. If this continues, some of the people in underwater houses (meaning with a mortgage more than the value of the house) might just see the flood recede and regain some positive equity in the house. This would greatly reduce the number of foreclosures in the future. It would make it an economically rational thing for people to pay their mortgages again. As it stands today in big areas of the country, it isn’t.
As a result, mortgage delinquencies have been skyrocketing, and eventually those delinquencies will lead to foreclosures. That could reignite a vicious circle, where the foreclosed houses flood the market, once again depressing prices, which causes more people to think there are better places to put their money than paying their mortgages.
Rising home prices have the potential to turn that into a virtuous cycle. To the extent that happens, it has very positive implications for the entire mortgage complex, from the big banks like Bank of America (BAC) to the mortgage insurance firms like MGIC (MTG) to the wards of the state, Fannie (FNM) and Freddie (FRE).
However, I fear that the increase in home prices is only temporary. That it is the product of extraordinary government efforts to prop up home prices, and that those efforts can not be sustained forever. These include the tax credit (recently expanded to include move up buyers), which is scheduled to end at the end of April, and the Fed’s program of buying up $1.25 Trillion in mortgage-backed paper to manipulate mortgage rates lower. They should finish up their purchases by the end of March.
The FHA has also played a huge role in propping up the market, making far more loans than it ever has before, and only requiring down-payments of 3.5%. People can even use the tax credit for their down-payment. The FHA’s reserves are already dangerously low, and the delinquencies on the loans they insure are skyrocketing, particularly for mortgages it issued in 2007 and 2008. This year’s loans have not really had time to go bad yet. The FHA may end up going the way of Fannie and Freddie and require a massive federal bailout.
All in all, the increase in home prices is good news, but it is coming with a big price from the Federal Treasury and may end up being ephemeral. The risk of a renewed downturn in the second quarter of 2010 is very big. If that were to occur, it would mean more pain for the mortgage complex.
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The long term trend line value pre-bubble was a total of $13.5 trillion. House values have receded not quite halfway to their long term trend line value. Unfortunately, when inflated prices fall back to a long term trend line they have a tendency to overshoot below that trend line, taking that much longer to return to normal.
Another leg down yet to come.
I summarize this argument here:
2and20vision.wordpress...
Are you serious? Do you realize how much home prices will have to rise for any of the multitude of homebuyers that bought during the later stages of the boom (2004-2006) to be "above water" again? Perhaps some of those who bought in late 2008 might get some of their equity back (although I've seen plenty of new foreclosures appear on the MLS lately for houses bought in 2008 and even 2009)...as long as they got a real bargain. These home sales statistics are as manipulated as any the govt. issues...all in the hopes of fooling people into overpaying for houses and reinflating the bubble. Give it a rest.
We living in California and know exactly how painful it is for housing industry.
Watch out for media spins, especially from Realtors, Dirk van Dijk, Zacks Research
On a year over year basis, the C-20 is down by 9.39% while the C-10 is down 8.53%.
On Nov 25 03:30 PM User 404862 wrote:
> interesting how positive the spin has been on this story in several
> sources. 'rising' prices....'4th straight rise'. 0.27% is flat to
> me
Prices move with carrying costs, which move with incomes. What's the average monthly carrying cost/average monthly income?
What about carrying cost/rent?
These are the fundamental factors that will tell if a bottom is solid.
It is akin to saying that manure is better than crap.
My wife is a longtime Realtor in the Charleston, SC area with over 20 years experience. We are both semi-retired and I trade equities for income. We have a nice home bought in '05 in an upscale neighborhood. We also have no mortgage but desire to downsize. In the Fall of '07 I could have sold my home for $1,150,000 based on sold comps in my neighborhood. Today, these same homes are selling for $850-900K. These figures are very likely to decline further as we go into '10. I see this same scenario occurring in the Carolinas and Georgia, but I do realize there may be exceptions as all real estate is local and there may be some areas experiencing price appreciation.
There isToo much uncertainty with an over leveraged Fed to provide confidence that home prices will increase in the next one to two years. Of course I can and will probably sell @ these lower prices, knowing that I can get another property at a distressed price either through foreclosure or a short sale.
On Nov 25 03:30 PM User 404862 wrote:
> interesting how positive the spin has been on this story in several
> sources. 'rising' prices....'4th straight rise'. 0.27% is flat to
> me
On Nov 25 11:09 PM Nettligent wrote:
> Housing is not a buble until it busted. The worst has yet to come
> yet. If you have noticed, the above posts indicated that customers
> are more intelligent and smart enough to understand the world around.
>
> We living in California and know exactly how painful it is for housing
> industry.
> Watch out for media spins, especially from Realtors, Dirk van Dijk,
> Zacks Research
I'm not an expert on this but SF and the peninsula south of there are a little bit special in that there is a lot of access to foreigners wishing to buy American property and, being that this is a peninsula, there is no room to expand. Not to say we can't have a bubble here, just that the SF market operates a little differently.
Eventually these home owners will burn out, giving up the fact that they will ever sell their homes for what they bought it for and will simply drop the keys in their mailbox and find a cheaper alternative which in the last year means moving out of state.
I'm in the building industry here in the Tampa area, and there is nearly 40-50% empty commercial space in most of the business parks, not to mention the glut of empty retail space developed in the last 7 years. The building industry...the biggest overall employers in FL for the last decade, has more than 50% unemployment.
Unfortunately, speculators, developers, real estate, bankers, and mortgage originators all played a part in this casino flipping mentality. I worked on several beach condo jobs that had units sold 6 times over, before they were even finished putting the interior walls up. All the while, real estate pros chanting, "don't miss out on your opportunity to cash in"
Well, these "Pros" are still at it and I've watched several residential houses being foreclosed, short saled, and flipped by these same people some barely even putting cheap paint or carpet in these houses and marking them up 60-85K and saying what a deal they are.
There are also many, many good to higher end neighborhoods where several homes have been empty for more than a year, but the banks have not foreclosed on them yet. Shadow inventory is very real in Florida, and in some very exclusive areas as well.
Chris is absolutely correct. After the market turmoil we have experienced, most people are looking at the real numbers. 400-600 a month for taxes...on top of your mortgage?? Suddenly that "deal" doesn't look so good when the house you are being shown still needs new kitchen, baths, roof/AC units and is priced at close to or over 200K. Most middle class wages, especially in FL don't support a $2000 mortgage payment (including taxes) Florida is so hard hit, property taxes will not go down to affordable levels anytime soon. I recently went through a private neighborhood with 3+ acre lots with homes about 20 years old. 3 of the 10 homes on one street were in foreclosure. Why, prperty taxes went from $3800 a year in 2001 to $17,000 a year now. (down only $1000 from 2008) That's $316 to now $1400+ a month in taxes. Some people that retired 20 years ago, and who paid off their homes, don't have the inflated incomes to compete with that swing.
All this while the housing market has been on FED life support all summer and now into April 2010.
I don't know too many people in any industry in FL that feel like they have great job security. Without the tourism dollars, it looks even worse. Most of us that are in it for the long haul are being very cautious, even while the news says we should be rushing for Black Friday Deals.
I for one am going back to work.
Anon-Pinellas County FL
OK, carry on with the negativity..
On Nov 27 12:42 PM Vote TL wrote:
> Unfortunately, Chris in Tampa is very accurate with his description.
> We haven't hit a true bottom in Tampa. I would also say that sums
> up most of Florida. Florida, Vegas, Arizona, and Southern California
> would all top the list of "Bubble Central" more than San Francisco.
> (Author, do some basic fact checking please). SF has always had premium
> real estate pricing, due to alot of high paying industries. Florida
> on the other hand has always had lower wages and not much cutting
> edge tech jobs. Mostly great weather, and as a result, tourism. With
> the economy in the toliet, all of us are suffering, and the housing
> market here, is still not ready to face reality.
>
> I'm in the building industry here in the Tampa area, and there is
> nearly 40-50% empty commercial space in most of the business parks,
> not to mention the glut of empty retail space developed in the last
> 7 years. The building industry...the biggest overall employers in
> FL for the last decade, has more than 50% unemployment.
>
> Unfortunately, speculators, developers, real estate, bankers, and
> mortgage originators all played a part in this casino flipping mentality.
> I worked on several beach condo jobs that had units sold 6 times
> over, before they were even finished putting the interior walls up.
> All the while, real estate pros chanting, "don't miss out on your
> opportunity to cash in"
>
> Well, these "Pros" are still at it and I've watched several residential
> houses being foreclosed, short saled, and flipped by these same people
> some barely even putting cheap paint or carpet in these houses and
> marking them up 60-85K and saying what a deal they are.
>
> There are also many, many good to higher end neighborhoods where
> several homes have been empty for more than a year, but the banks
> have not foreclosed on them yet. Shadow inventory is very real in
> Florida, and in some very exclusive areas as well.
>
> Chris is absolutely correct. After the market turmoil we have experienced,
> most people are looking at the real numbers. 400-600 a month for
> taxes...on top of your mortgage?? Suddenly that "deal" doesn't look
> so good when the house you are being shown still needs new kitchen,
> baths, roof/AC units and is priced at close to or over 200K. Most
> middle class wages, especially in FL don't support a $2000 mortgage
> payment (including taxes) Florida is so hard hit, property taxes
> will not go down to affordable levels anytime soon. I recently went
> through a private neighborhood with 3+ acre lots with homes about
> 20 years old. 3 of the 10 homes on one street were in foreclosure.
> Why, prperty taxes went from $3800 a year in 2001 to $17,000 a year
> now. (down only $1000 from 2008) That's $316 to now $1400+ a month
> in taxes. Some people that retired 20 years ago, and who paid off
> their homes, don't have the inflated incomes to compete with that
> swing.
>
> All this while the housing market has been on FED life support all
> summer and now into April 2010.
>
> I don't know too many people in any industry in FL that feel like
> they have great job security. Without the tourism dollars, it looks
> even worse. Most of us that are in it for the long haul are being
> very cautious, even while the news says we should be rushing for
> Black Friday Deals.
>
> I for one am going back to work.
>
> Anon-Pinellas County FL
game....
The ball is between 6-8 psi.........
salil ghoshal