The S&P/Case Shiller® composite index (graph here) for the month of October was released today.
"Data through October 2008, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 14 of the 20 metro areas showing record rates of annual decline and 14 now reporting declines in excess of 10% versus October 2007. . . . the 10-City and 20-City Composites set new records, with annual declines of 19.1% and 18.0%, respectively.”
43 comments:
An index of 184, that brings us back to May-June 2004.
Lots of bleeding still to go. Too bad most of the 04 owners trying to sell haven't gotten the message yet.
With your MRIS decade of sales numbers I'm feeling spoiled by getting timely news.
That's a pretty deep rollback though, how much farther do you think we can realistically go? I do think more expensive areas will fall farther than the lower end areas in the next year but it seems like we might be seeing daylight eventually.
Jeff B.
I believe the CS index is corrected for inflation already, so there's no particular reason it won't go back to the year 2000 level of 100. That wouldn't mean a roll-back to 2000 prices, just to 2000 prices times (1.03)^9. I'm "predicting" that we'll revert back to the trend, and 2004 is pretty firmly in the bubble years.
The more expensive areas will fall farther than the lower end areas next year? Now that's a bold prediction! Based on that they haven't fallen as much yet? Or that jumbo loans are more expensive and harder to get (or swallow)? Or something else?
I'm more pessimistic about seeing hefty high-end drops. I expect that the low ends are closer to true capitulation and hence will continue to fall faster, and that only the economy itself will bring realism to the higher end of the market. The low end still has a ways to go to be cash-flow positive in the long run (i.e. with cheaper rents). So I expect it to outpace the high end until it reaches its own bottom.
any one know about expresspath.com mortgages. the web site says 100% loans, no pmi etc... is this true any one has any info on this...please share. i was looking at a bank owned property and listing says that qulified for expresspath mortgage...so i thought i can do some finding...any way let me know..
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Jeff - the futures market predicts DC will bottom out at 160 in nominal terms. In inflation adjusted terms, that would be about 120.
http://www.cme.com/trading/prd/re/housing.html
Its interesting in that the futures predict DC one of the few markets that will bottom well above the inflation adjusted mean (i.e. bottom at an inflation adjusted 120, versus 100 or below for other markets). This is probably because even though DC values got as high as just about anywhere in the US, the rate of burn down is much slower than the other "big bubble" markets, i.e. LA, MIA, SD, LV, etc. in the US.
Ive been traking this for a while and it seems like the predicitons are OK for short term (6-9 months out), but arent very good beyond that.
Also, I agree with Cara in that the high end will not fall farther than the low end. If you look at the tiered data, the high end prices never rose as far as the low end did in the first place - meaning high end has less to fall to get back in line with fundamendtals.
http://www2.standardandpoors.com/spf/pdf/index/cs_tieredprices_123062.xls
Anon: the futures data is really interesting. As long as the DC area is adding jobs faster than the other major metro areas, the prices won't fall as fast or as far as those other areas, but they will fall.
October was a record Month-over-Month and Year-over-year decline for the DC area. And based on NAR data from November it could be even worse. This is not over by a longshot.
As far as the CME futures go, I dont' think that the DC area is very active (zero trades in most contracts for months), so it's prediction value is probably close to nil.
I think the capitulation is staggered not so much by location (inexpensive areas more than expensive areas) but by type of housing (inexpensive housing more than expensive housing).
The rationale: it varies.
For expensive true luxury housing there's a very small market and most of the players there are long-term holders. Why sell a 5M house in a down market, particularly if you can afford a completely different 5M house, and likely already own one? With little volume and tight control (extremely sticky on the downside) prices aren't likely to decline much, and will do so very slowly compared to the other categories.
High-end housing, single family homes in most of Alexandria, parts of Fairfax and Loudan, and a few truly luxury townhomes or condos in Arlington--so including nice properties in the northern reaches of VA, and single-family plots on larger acreage a little further out has high inherent value, and there are sufficient high-end pay-scale people to take the majority of these. So demand remains high, and climbs significantly if prices decline much. Most people in the medium-range housing below would love to move up to these, even at a detriment to themselves financially (such as selling their current house in a down market).
Medium-range housing, that is primarily single-family housing in secondary desireable areas (the rest of Fairfax, e.g.) and non-SF housing in Alexandria or Arlington which doesn't fit into the above categories gets hit pretty hard because the people who live here tend to be middle-range salaried folks who can, unfortunately, be subject to sudden changes much more than other groups. In addition to the move-ups, you also have move-aways in here as jobs go elsewhere, as well as aspirationals who couldn't afford the product normally but hacked their way in with crazy financing and good credit. This is the area that has the biggest to decline still, in my opinion.
Low-end housing, such as SFH in the least-desireable areas, PWC, Stafford, Faquier and out or non-SF housing in secondary Fairfax. These properties tend to have already been slammed pretty hard, but they actually have a good bit left to go. And example for this might be a house which would have sold for $400K at close to peak time and will now list for $270K and maybe sell for $230K. A 30%+ reduction is nothing to sneeze at, but I would not be surprised to see that example drop to $180K, or perhaps a bit lower. 55%-60% off peak means a painful road still left for this group, but the acceleration will be towards the positive, we've passed the inflection point.
Lastly is the ultra-low end housing, such as townhouses in the further out areas. Most of these have cratered enough to be at close to what I perceive to be a price parity. $50K-$100K for these properties throughout Manassas and the rest of Prince William seems sustainable. The only thing that could cause them to go down significantly more, in my opinion again, would be a decrease in population for the area at large.
So, my chart, in order of rates of decline for 2009:
Medium Housing
Low-End Housing
High-End Housing
Luxury Housing
Ultra-Low-End Housing.
All will still be in decline, but from where I'm standing, Fairfax and Loudon are in for some serious pain. PW and other outer areas are going to suffer some more, but less than last year, and then the inner sanctums will start to fray a little.
tiered data for DC:
http://www2.standardandpoors.com/spf/pdf/index/cs_tieredprices_123062.xls
WDC aggregate: -19.7% YoY in October, -26.3% from 5/06 peak
WDC "high tier" (over $459k): -12.6% YoY, -18.2% from 6/06 peak
WDC "mid tier" ($309k to $459k): -22.0% YoY, -30.0% from 6/06 peak
WDC "low tier" (up to $309k): -30.9% YoY, -36.1% from 7/06 peak
The rate of YoY price declines is accelerating.
xpovos,
I appreciate your discussion, and think you are quite right. Quick question:
For those areas/types of housing which have already come down 55-60% from peak, are you saying they still have farther to go? Or is that correction range what "low-end" housing will settle down to, and if they already have done so, more discounting is unlikely?
Xpovos: I dunno about your "true luxury" theory. If these folks want to sell, they sell for whatever they can. After all, a million dollars is a drop in the bucket for them.
Heck, Ted Koppel slashed the asking price of his home from $4.1 million to $1.94 million.
http://www.huffingtonpost.com/2008/06/05/ted-koppel-closeout-despe_n_105548.html
My thinking is that the worst of the mortgages were the first to fall and they're disproportionately in the lower end. So as we go forward we'll see pain everywhere but will finally see higher end owners starting to panic. High end buyers can most likely hang on for much longer than low-end buyers so defaults or panic sales are probably delayed in that bracket.
Also as you said the lower end has provided most of the current YOY decline (I think). So it has less potential room to fall than the higher range stuff.
xpovos, with all due respect your explanation for why so-called "high end housing" won't fall much seems to be more than a little circular in the logic department:
"High-end housing...has high inherent value"
How do you define inherent value? How do measure the "highness" of such inherent value? How does this "high inherent value" compare to current prices? Etc, Etc? Your current rationale is just too vague to have any meaning.
Blacksilver - I agree. Their take seems to be pretty reasoned saying we have about -13% more to go. Less than the -19% predicted last week, more than the " DCrecovery" now predicted business week -- sounds pretty good to me.
Shamrock - I agree, but even with the light trading, its been pretty good within say 6 months. For example, DC futures just went down a good bit for next spring. Beyond 6 months though, it seems pretty worthless.
Xpovos - great post. Only thing I would change is the townhomes in Old Town Alexandria are more properly considered high end vs. medium range housing. I think you meant this regardless.
JF - Yep. This was our worst month ever -- no sign it is stabilizing at all.
"Jeff B said...
Also as you said the lower end has provided most of the current YOY decline (I think). So it has less potential room to fall than the higher range stuff."
Actually I think its the reverse Jeff. My prior link was broken so try this:
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,5,0,0,0,0,0.html
In DC, even at this stage in the game, low end housing is +189% of year 2000 values, versus high end being +182% of year 2000 values - so even at this point, low end has farther to fall than high end.
Note too where it was in summer of 2006, low end got up to +296% of year 2000 prices, while high end "only" got up to +223% of year 2000 prices. Thus, its likely high end wont fall as much because it never rose as high in the first place.
Arlington County Real Estate Values Better Than Expected
Estimated 2010 budget gap now $35 million
ARLINGTON, Va. --- Arlington real estate property values for 2009 performed at a higher-than-expected level, showing a net gain of 0.4%, County officials announced today. Existing properties declined in value 0.06%, but new property added 1.0% to the County’s real estate, resulting in a slight gain.
Previous projections were for a decline of up to 5.0%. Normal growth for a sustainable budget is plus 4.0%
The commercial property tax base increased by 2.3%, while residential properties saw a net decrease of 1.2%.
The encouraging news on property values was partially offset by downward revisions for other revenues that are sensitive to economic conditions, including personal property taxes on motor vehicles. Additionally, the budget proposed by Virginia Governor Tim Kaine would further reduce state aid to Arlington by $2 million.
County Manager Ron Carlee reported that the County’s projected gap for Fiscal Year 2010 (July 2009 - June 2010) has decreased from approximately $40 million, announced in November 2008, to slightly less than $35 million.
Budget remains challenging
"It is great having some good news for a change" Carlee said. "Nonetheless, the FY 2010 budget remains a great challenge. To balance the budget, we will still have to use a combination of service reductions, downsizing, and tax rate increases."
Carlee announced earlier in December that he would recommend no pay increases for County employees in FY 2010 in order to preserve as many services and as many jobs as possible. He previously instituted a freeze on vacancies for non-essential services and is preparing a plan for voluntary severance and early retirement.
"As difficult as this budget is, I would not trade the challenges in Arlington with those in any other community," Carlee said. “We will have to make decisions that we will not like, but we can manage this situation."
Carlee will present his proposed budget for FY 2010 in February 2009.
Net 1.2% decrease in residential property
As noted, Carlee had previously estimated that real estate values would range from zero to a decline of up to 5%. For budget planning purposes, his working estimate had been negative 2.0%. Existing residential properties did indeed decline 2.0%; however, new construction and condo conversions softened this decline, resulting in a net decrease of 1.2% in residential property.
The average single-family assessment for 2009 is $520,100, a decline from $530,800 in the previous year.
Commercial properties remain solid
Values were better than expected in commercial property.
"Having a property tax base that is split between residential and commercial property makes our economy extremely resilient," Carlee said. "We also benefit from the fact that within each category, we have a wide diversity of sub-types: detached houses, townhouses, condos, garden and high-rise rental apartments, office, retail, and hotel properties. All help smooth out dramatic shifts in any one particular sector."
The County Manager will present a detailed analysis of the County’s 2009 real estate assessments in January. Among the key points:
The change in the tax base is due to a combination of growth from new construction, which added about 1% to the base, and declining property assessments, which accounted for a negative 0.6% change in the base.
The total residential tax base, which consists of single-family neighborhoods of detached dwellings, townhouses, condominiums and cooperative units, declined in value from $31.5 billion to $31.1 billion, or negative 1.2%. New construction and conversion of property to condominiums added 0.9% to residential property values, while declining assessments accounted for a negative 2.1% change.
The commercial property tax base, which includes multifamily residential property, offices, hotels, shopping centers and retail properties, increased by 2.3%, of which 1.2% was due to new construction and condominium conversions and 1.1% was due to appreciation in value.
Multifamily residential assessments increased to $9.3 billion. The change of positive 5.4% is attributable to three sources: new construction, which added 4.2% in value; conversion of apartments to condominiums, which reduced the base by negative 0.6%; and appreciation in value, which added 1.8% to the multifamily base.
Other commercial property increased in assessed value to $17.3 billion, an increase in the base of 0.7%. Conversion of property to residential use produced a negative 0.4% that was balanced by a gain from new construction of positive 0.4%. Appreciation in value added 0.7% to the base.
The total value of all property is up 0.4% to $57.7 billion.
###
Arlington, Va., is a world-class residential, business and tourist location that was originally part of the "10 miles square" parcel of land surveyed in 1791 to be the Nation's Capital. It is the geographically smallest self-governing county in the United States, occupying slightly less than 26 square miles. Arlington maintains a rich variety of stable neighborhoods, quality schools and enlightened land use, and received the Environmental Protection Agency’s highest award for "Smart Growth" in 2002. Home to some of the most influential organizations in the world - including the Pentagon - Arlington stands out as one of America’s preeminent places to live, visit and do business.
tabitha,
I expect the houses that have already taken that 55-60% hit to go down more, but to decelerate that decline dramatically. I'd say look for 3%-ish declines over the next 3-5 years and then a slow recovery. Obviously, that will vary based on individual houses and tastes. Wheras other houses will fall at a faster rate than last year. Essentially, I'm calling a floor on prices based on what appears to be an inherent value. For lowest-end housing that would be 50-100K. For low-end housing 120-180K. These are floor numbers, so I'd also expect numerous sales at higher prices for nicer properties.
NoVAWatcher,
Point well made, someone who wants to sell has to accept the market price at the time. My point was merely that the owners of those houses are not subject (often) to the same types of situations that force 'weaker' hands to sell during bad times; so they'll elect to hold reducing inventory to maintain supply and ballast prices.
JF,
I see your critique. It's valid, let me try again. Extremely large houses, OR houses that are in extremely desireable neighborhoods, OR houses with built in luxuries (not granite countertops) are inherently more valuable than houses not in those categories. Also, as the supply of these--while still larger than the demand--is lower than the supply of less quality housing the prices will remain relatively high. They will still decline, and in some cases dramatically. 10% or more in a year at peat rate of decline, and probably as much as 30% overall. But they will not, IMO, suffer 50-60% losses seen in lower-end housing. And the reason why is because they are both lower in supply and higher in demand. Hopefully that is not too circular. It is vauge still, but that's largely because I don't follow those markets. I feel more comfortable tossing out numbers for "ultra-low" and "low-end" because that's where I live and pay attention. I have confidence in the overall pattern, though.
Anon - I was able to bring up the link and what you're saying makes sense.
What do you think happens now that low-end prices have "caught up" with the high-end? If they're both at roughly 180% over 2000 values (I know the low end still exceeds the high but it's close) do you think the low end will continue to fall significantly faster than the high end?
"ARLINGTON, Va. --- Arlington real estate property values for 2009 performed at a higher-than-expected level, showing a net gain of 0.4%, County officials announced today."
Wow, 2008 isn't even over but yet Arlington County officials already have price change data for the year 2009. Must be one heck of a crystal ball they have. Or maybe they consulted with Miss Cleo.
Quote from Case-Schiller--
"Most of the positive monthly data recorded in the spring and summer months, merely reflects seasonal patterns in home prices, as opposed to a turnaround in the downward spiral in national home prices."
Someone on this board actually posted not long ago that "there is no seasonality in prices".
LOL
Fasten your seatbelts, home price results through February this winter (up through the April Case-Schiller) are going to TAKE YOUR BREATH AWAY.
THIS month's report shows the BIGGEST PRICE DROP EVER ON RECORD for the DC area--AND, we're just starting to hit months that will report on the reaction to the October stock market crash!
NOTE TO MATH GEEKS LIKE ME:
I think the formula used in the spreadsheet in the head of this thread may be incorrect.
I got a value of -2.67% drop, not -2.74% drop, for the latest month.
Shouldn't the formula be
100*(LATEST-PREVIOUS)/PREVIOUS,
not
100*(LATEST-PREVIOUS)/LATEST????
I.E. the new percent change builds on the PREVIOUS month?
"Don't forget Bushie stopped foreclosures these last few months, during the holidays, which will resume, retroactively, after the first of the year."
Yeah that's pretty frightening. A lot of banks put foreclosures on hold and they've been watching the value of their collateral continue to drop for 2 months. It could get pretty ugly.
-- The value of this index is a question mark to me now. A housing market recovery won't precede employment recovery. The overall economy is now driving the housing market.
-- A tax credit for new home buyers won't help this decline. It's not helping house sales in DC, which still has a $5K tax credit.
-- The U.S. will let the Alt mortgages go into foreclosure. The banks, by their inaction so far, probably feel that best course of action is to clear debt (with the government's help) and not try to rescue the probably doomed.
-- I hope board of directors are liable for the actions of lenders. The NYT piece this weekend http://tinyurl.com/78p77a was just a stunner. I realized that undocumented mortgages were approved, but processes described in this story are really, really exceptional. Sarbanes Oxley was suppose to create some liability for directors. Hoping.
And how far will prices decline? Any estimate will be a guess, and it doesn't matter if you won't buy.
JF,
The tiered declines really do tell the most interesting and relevant story, thanks.
Jeff B,
I would say that the downward velocity of the "low-end" as defined by under $300k is so high that it will continue falling due to increased levels of distress. Pain is what's driving the market forces now.
Scott,
yeah, with seasonality about to kick in, this is going to be a very interesting winter.
Case/Shiller price changes in graphical format for major cities:
http://tinyurl.com/77k42o
very cool graphic JF. Poor detroit - it rose at only half the rate of the 20 city average, yet is falling at the same rate as the 20 cities.
Look too at that spike in Las Vegas -- for a while, prices were going up 50% a year -- talk about a ponzi scheme!!!
JF,
totally awesome graphic. I love the NY TImes graphics department. I totally wish coming up with illustrative cool graphics were my job.
Very very interesting. It looks as if DC is pretty much right on track with the overall trend. Not sure what to conclude from that.
came across this post on a non-RE related message board:
"The Home Builders Association (or some home association) is pushing congress to offer a stimulus that looks something like this:
For homes purchased in the 1st half of 2009, up to a 22K tax credit.
Also for home purchases in the 1st half of 2009 lowering interest rates to 3.5-4% for new mortgages."
what do you all think the odds of it happening and will it affect your buying decision?
mm,
It is highly unlikely to happen. Do the builders want the incentives only for their newly built homes?
I'm sure the home builders would love both of those incentives since they would keep home valuations from moving.
I would take a tax credit into account I suppose since it's pretty much cash. Low interest rates aren't of much interest to me though if they're for a house that's overpriced.
>For homes purchased in the 1st half of 2009, up to a 22K tax credit.
Also for home purchases in the 1st half of 2009 lowering interest rates to 3.5-4% for new mortgages."
>
I can't see this getting approved. If we're going to let existing homeowners sink without government help, why offer a 22K handout to new homeowners? It's not going to prop up prices or offer much help to existing homeowners, not with the inventory backlog.
There is a nice option for veterans, however. There were a number of reforms made in a couple of months that allow 100% conventional to VA refinancing. The problem, it seems, is too few houses are actually on the VA approved list. It's really hard to find any condos that are VA approved. Rules seem tough.
mm,
It seems incredibly unlikely that such a thing would be approved. It's too much tinkering with the market. 6 months in which you get 22k free money? That's just too bizarre. It would make some sense if it's only applied to "new" construction that's gone unsold for 6 months or more, because builders did slow down building a while ago and the purpose would be to get rid of the overhang of new construction from the end of the bubble.
However, if it's only for new construction it won't affect me in the least, as none of that in the area I'm interested in is within my price range, $22k free money or no.
It's not in builder's best interest that either portion be allowed for the rest of the market, it would be too dillutive. And I don't think there are enough qualified first time buyers to eliminate the foreclosure inventory in 6 months, so I don't see how it would help if it were applied to the whole market. But applying it only to new construction would be unseemly, so I don't see it happening.
Thomas said... (hi GS-14 Tom, welcome back)
"...Existing residential properties did indeed decline 2.0%...
The average single-family assessment for 2009 is $520,100, a decline from $530,800 in the previous year..."
Is this in-line with the YOY stats we've been seeing so far this year? How far apart are the assessments to the 'fair market value' of listed homes?
cara, thought you might be interested in this..
http://www.metrodcliving.com/urbantrekker/2008/12/townhouses-at-kingstowne-cheaper-than-condos.html
GT
That's awesome!!
Of course she means townhouses in Kingstowne are cheaper than condos in Arlington. But she's late to that news, it's been true for a year if not more. What I find interesting is that many SFH in Kingstowne are cheaper than condos in Kingstowne. That's if you go by list price on some of the WTF priced apartments for sale.
Kingstowne is totally a good alternative, who cares about inside or outside the freakin beltway, what matters is can you walk to a metro stop, and how long does it take to get in? To say Kingstowne has a "town center" is over-selling it a bit. It has a nice new brick strip mall, which at least has a post office which could count as a government building at a stretch. Kingstowne is a suburb, no doubt about it, and one with very little character. But it's a well-positioned suburb with good access to major routes and public transport and nice parks and decent schools.
Hopefully she'll help move those townhouses, so that they can help bring down the comps and bring more realism to the ones one tier up.
gt
OMG! She had a link to the Kingstowne Association webpage which has the sales prices for all the "most recent sales" by neighborhood!!! This is awesome!!
http://www.kingstowne.org/propsales.htm
So much data, in such a nice compact form...
It had not occured to me to look for this, so I hadn't found it til now.
The reality is that for most of our area, prices still have another 20% to go before they are back into line with the historical fundamentals relating to wages and rents.
We are truly in uncharted waters now, with coming job losses and the fact that the consumer is simply TAPPED OUT! There are so few qualified buyers, and so much inventory, that it just doesnt make sense to buy until we have reached more of an equilibrium...
Also, I believe that the coming Alt-A and Prime default waves are going to be devistating, as Alt-A alone absolutely DWARFS Subprime, and is now defaulting at the same pace.
www.patrick.net is one of my fave sites for unbiased info on the Rent vs. Purchase argument as well as a great daily round up of economic and housing news...
Highly reccomended!
Best of luck to all in this crazy market!!
--WHY THERE IS SO MUCH MORE PAIN TO COME IN THE HOUSING MARKET--
For anyone trying to understand the who, what and why of the housing crash, this is an AWESOME Powerpoint presentation:
http://www.designs.valueinvestorinsight.com/bonus/pdf/T2_Housing_Analysis.pdf?ref=patrick.net
Case Shiller is not adjusted for inflation. You can search on Case Shiller inflation adjusted to find graphs and information. Search CPI and go to bls.gov market data and look at historical data to see the CPI. Bear in mind the year that is 100 changes from BLS in different data sets.
http://mysite.verizon.net/vodkajim/housingbubble/
Has one graph. The red is inflation adjusted. There is no 3 percent a year trend in the first part of the graph, just a bubble in the second part. Shiller himself says that he doesn't believe in a trend once you adjust for size and quality and inflation, i.e. the same home adjusted for inflation stays the same in price is what he believes.
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