Housing Prices: Bad, but Abating

Wow, those house prices are looking dreadful, aren't they. Check out the headline on the front page of NYTimes.com: "Home Price Index Down 15.8% in May" is the story. And the official press release from Case-Shiller is also very alarming: "Record Low Annual Declines Recorded in May 2008 for the S&P/Case-Shiller Composite Home Price Indices" says the headline, above a chart showing house prices falling off a cliff.

Except, house prices didn't fall 15.8% in May, they fell 0.9% in May, to a level 15.8% lower than they were a year previously. If you look at the actual level of the Case-Shiller, it fell to 168.54 from 170.00 - a decline of 1.46, which is actually the smallest month-on-month decline since August 2007. Back in February, the index fell by 4.75 points in one month, a much larger drop.

The index is based off a level of 100 in January 2000; it reached a high of 206.52 in July 2006. Its current level means that house prices are back to where they were in mid-2004.

Suppose some miracle happened and house prices nationwide rose by 10% in June. The index would go back up to 185.39, compared to a level of 199.44 in June 2007. Yet using today's methodology, the headline on NYTimes.com would say that the home price index fell 7% in June.

There's no doubt that the housing market is in bad shape: According to the Case-Shiller index, house prices are now 18.4% below their mid-2006 peak. If you think that housing prices generally are going to fall 20% from the peak, we're nearly there; if you think they're going to fall much more than that, worse is yet to come. But certainly the rate of house-price declines seems to be abating a little.

All of which is why the focus on the year-on-year figures is silly. Look at the month-on-month figures to see what's going on now, and look at the percentage-off-highs for the big picture. The 12-month decline is of interest only to people who bought a year ago and are selling now, which is a tiny fraction of the population indeed.

Comments

[billb]

Way to take the spin off the numbers. Thanks for doing our homework for us!

2008 Jul 29 12:49 PM

[HARM]

Point taken (yes, the MSM is perenially alarmist or just plain bad with numbers). However, I take issue with the negative terms used in conjunction with falling bubble-inflated house prices: "bad"...."dreadful"... "worse".

Deflating house prices is not the least bit "bad news" to anyone seeking to buy a house some day at a fair price with sane lending. What's "bad" is prices climbing 20%/year due to insane speculation, reckless lending to anyone who could fog a mirror, and idiotic bidding wars over dirt.

How come when the price of oil and food falls, it's "wonderful" news, but when the cost of basic shelter falls it's "dreadful"?

Felix, for your next post try this headline on for size:

"Housing Prices: Good, and Getting Better Ever Day: Sidelined creditworthy borrowers rejoice!"

2008 Jul 29 02:33 PM

[2houndz]

I am in cash, renting and ready to buy. Felix - ring the bell for me at the bottom if you please.

2008 Jul 29 05:41 PM

[Jason Rines (iThinkBig)]

Interesting. They were cheerleading these last few months of how rosie things were and now that the mask is peeling off the pig they instantly talk about armageddon. Consistent anything out of NYC these days is sure becoming fluky. It might also have to do with an election year and we are four months away. Just maybe.

2008 Jul 29 09:52 PM