The S&P/Case Shiller® composite index (graph here) for the month of October was released today.
"The turn-around in home prices seen in the Spring and Summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat" says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. "Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale. At the same time, housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010."
52 comments:
housebuyer,
If it only goes down 1% next month MoM then it would be at 177.9 which would be the first YoY gain since the cliff-diving began.
But from plus 0.9% MoM to -.41% is pretty dramatic. Given that, I'm guessing we have at least one month of -2% or greater in our future this winter/spring, although I doubt we'll see 6 in a row like we did starting last September.
My prediction for this winter/spring bottom is within 2% of the 165 of last March.
If the step-up buyer program or fear of rising interest rates creates too much short term demand, then we may not quite get there but those should drain demand from the summer making for a much weaker summer bounce. We're not going to see 180 again for years.
As expected - trend resumes, even with the mad rush to not lose out on 8k credit.
Wait & watch November and especially December, very closely.
Not a single city in the 20 city index shows a YoY gain in housing prices, yet there are still those who say now is the time to buy. I guess if you keep saying the same thing long enough eventually you will be right.
Cara-
Your right I had forgotten what the numbers looked like. I was thinking that we had a month that was plus 0.3% or something like that. Somehow I imagined an entire month... I agree with your numbers.
Jeremy-
How does the fact that nothing has a year over year gain mean now is not the time to buy. For example in March the stock market had not gone up YoY for a couple of years and didn't have a month of month gain in half a year. Yet clearly that was the time to buy. Why can you not say the same thing about housing? Also with housing interest rates matter. The 10 year treasury has gone up 0.6% this month so you can expect the same to happen to mortgage rates. So housing would have needed to fall a couple of percent in the last month for you to be equally well off. I also do not think that now is a great time to buy, but I just don't follow your logic.
housebuyer, of course it is possible that even with every city seeing YoY declines that now is somehow the exact right time to buy. It is however much more risky to bet on right now being the exact bottom than to just wait until at least someplace somewhere is seeing increases in YoY prices before jumping in and risking years worth of savings on a home.
housebuyer,
Housing does not behave like stock market. Trend is down even with government all in. That's clearly ultra-bearish for housing.
I don't think it's good time to buy at all. We will revisit 165 and break below (my prediction is 150-155) sometime in 2010. HAMP failure and fed exit makes this almost certain.
Personally I'd like to see YoY gains here before buying a home, but I don't think that will happen in my 6-18 month purchase window. Yes, I realize that will mean I missed the bottom, but I don't care about that since there isn't going to be a steep 'V' recovery. I just want some assurance I've missed the steep declines before jumping in.
Granted it was almost flat and doesn't suggest much until we see more data.
Honestly, even I wasn't expecting declines until December given the 8k euphoria. I would say October numbers should make V/L recovery believers rethink at the least.
Jeremy,
If housebuyer is right and we only see another 1% down next month then we could see YoY gains as soon as next month. We'd still be in the middle of winter slide to another local minimum.
So, I'd say we're bound to see YoY gains soon, just because of the steepness of last years decline and how the $8k pushed the summer's bounce into fall. But that won't be a good "all clear" sign. You need both YoY and MoM gains (or flatness) for that, preferable at least 6 months of them.
housebuyer said...
"Also with housing interest rates matter. The 10 year treasury has gone up 0.6% this month so you can expect the same to happen to mortgage rates. So housing would have needed to fall a couple of percent in the last month for you to be equally well off."
This statement is more controversial than it seems at face value. The first part about the 10 year treasury I'll admit I don't know too much about. But falling prices for increased interest rates is something I welcome, even in some cases where it is not 1:1 on the final payment for a couple reasons:
1. I plan on paying my house off faster than 30 years, so the interest rate increases don't hurt me as much as some others.
2. Lower prices put more homes into the realm of what I can put 20% down on and avoid PMI, which saves a lot of money that can amount to more than the interest rate increase.
3. Higher interest rates can be discounted by 30% or so when you take into account the larger mortgage interest deduction get for paying that higher interest rate.
housebuyer, yes, with the info that we now have, buying stocks at the end of the March would have been very wise. But at the time, would-be investors and others certainly did not believe it was a good time to buy. No one knew whether the recent precipitous declines, on top of a bad year in 2008, on top of a bad decade beginning in 2000, was going to come to an end. Financial advisers were instead trying to explain to customers that if they had not already moved money from stocks to money markets or CDs, they had already lost a ton of $ and would be locking in their losses. They recommended that instead investors wait for several months of stability or steady gains, and then to dollar cost average (buy a little at a time).
Similarly, we can't know for certain now whether prices will edge up (or shoot up) in housing--we'll only know when it's too late to take advantage. And as others have said, you can't just dabble your toe in the water with housing as you can with stocks. So it may be less risky to wait for a period of stability (how long?) to jump in, unless you know with absolute certainly that you will own the house for a long, long time.
spider,
"Honestly, even I wasn't expecting declines until December given the 8k euphoria. "
Really? Both housebuyer and I expected it. It's not as if we didn't have the MLS data for October to give us a good warning.
"I would say October numbers should make V/L recovery believers rethink at the least."
Unless someone thought the L was going to start from the summer's high's, then I don't see why you say that. Granted, many current seller's list prices seems to indicate that they were hoping the L (or V) would start from the August/September highs. But I think only Robert might have suggested that the summer's bounce would be fully retained.
The $8k brought out a lot of hopeful sellers as well as buyers, so I'm not surprised that in it's waning days before the now-post-poned deadline, prices resumed their natural trend of price discovery through increased transactions.
Cara said...
"If housebuyer is right and we only see another 1% down next month then we could see YoY gains as soon as next month."
Didn't it already go down 1.31% this month (from plus 0.9% MoM to -.41%)? And the 8k bribe I'm sure helped that figure. There is no urgency right now since it is extended, and most of the "pent up demand" buyers that would have used it already have. Only "new to the market" buyers will be using it in the future.
Looking at the Case-Schiller numbers, November-February were the worst declines for the previous two years and I don't think this year will be any different.
Jeremy,
Very valid points. As long as a reduction in price due to higher interest rates actually happens. (In your price range I think your buying power will continue to increase regardless)
If you're going to get fancy and include the mortgage interest deduction then you should also factor in the front-loaded advantage of a lower interest rate in the amoritization table. The lower the interest rate the less of an uphill battle you are fighting, and the sooner you get to owning another 20% of your house.
Yes, you can mimic this effect by pre-paying the mortgage. Which has the advantage of being something you have control over, unlike interest rates or house prices.
Jeremy,
Indeed, the MoM decline was -.4% the change in the rate of decline was -1.3%.
Both get discussed. For instance the MSM is touting a YoY improvement when what they mean is an improvement in the rate of decline YoY, not an actual YoY increase. It's like a game of pick your derivative. Whichever one looks best. Can't find any first order derivitives to be happy about? pick a second order one.
Jeremy-
I am not sure why you care that much about YoY. I am sure either next month or the one after will show gains. I agree there is some seasonality in MoM numbers, but the DC area was up 10% from its bottom, that is not a seasonal movement.
Also I don't think my comment was that controversial. I treasury . To make the payments the same for a 0.6% increase in rates the price would need to fall 5-6%. So I agree housing should fall less than this, but to fall 2%(a couple percent) seems if anything conservative.
Jeremy-
I totally I agree with you that there is absolutely no urgency. I think prices will trend down, but I don't think they will fall that much ~10% so if now is the right time to buy (e.g. Cara) than I think as long as you get a good deal on your house you should be fine.
Jeremy said...This statement is more controversial than it seems at face value. The first part about the 10 year treasury I'll admit I don't know too much about. But falling prices for increased interest rates is something I welcome, even in some cases where it is not 1:1 on the final payment for a couple reasons:
1. I plan on paying my house off faster than 30 years, so the interest rate increases don't hurt me as much as some others.
2. Lower prices put more homes into the realm of what I can put 20% down on and avoid PMI, which saves a lot of money that can amount to more than the interest rate increase.
3. Higher interest rates can be discounted by 30% or so when you take into account the larger mortgage interest deduction get for paying that higher interest rate.
Ugh. You forgot the most important part of higher interest rates: YOU CAN REFINANCE IF RATES GO BACK DOWN.
That's something all of those rent/buy calculators never factor in.
Jeremy/Robert, I'm of the same opinion. I scoff at people like my mortgage broker telling me to buy now because of interest rates being low. Fine, let them go up, doesn't bother me.
Eh, I still think MD+DC is down and NOVA is still up, but I can't prove it.
Good to have you back kevin. I think TBW must've gone skiiing. See if you can find beerchugger too. I like when he compliments my postings. I'm very insecure you know.
Robert said...
"You forgot the most important part of higher interest rates: YOU CAN REFINANCE IF RATES GO BACK DOWN."
Very true Robert, how could I have forgotten to mention that one! I guess in my mind interest rates won't be this low again until my home is just about paid off, so they'd have to be VERY low to make refinancing worth it. But as you often correctly remind us, interest rates are unpredictable.
You can always refinance but you can never renegotiate the closing price (well, unless you default and the government pushes through bank cram-downs in the future...)
"Spider said... I would say October numbers should make V/L recovery believers rethink at the least."
While this is indeed a dagger through the hearts of the V shaped crowd, I cant believe anyone would be so retarted as to think this does anything to the L shaped crowd.
I said awhile ago, I expect the Case Shiller DC to trade in a range of 160-180 for years. I was getting nervous as we approached the 180 mark but it now appears that the 2009 peak has been reached.
Now as to the 2010 valley, it remains to be seen if the 165 level seen in March can be reached. Cara is right in that given the measly -0.4% drop we saw this month, it seems a bit unlikely we will drop the remaining 15 points by March. If so, we will likely go YOY positive by Dec or Jan, and (in hindsight) we will realize that the absolute bottom is in March 2009.
I will say this last part is still a bit uncertain in my book. There is almost certainly some govt support in the system and that will be removed around the time the March seasonal low is reached, however I dont know if it will be enough to cause the prices to drop to below the March 2009 level of 165 before the countervailing seasonal up trend takes over again.
So I again see this as very damaging to the v shapers but right in line with what one would expect for the L shape (at least those who contemplated the L shape as a seasonal "sawtooth" up and down pattern).
Cara said...
"If it only goes down 1% next month MoM then it would be at 177.9 which would be the first YoY gain since the cliff-diving began."
The main page shows 180.27 as the November 2008 value. 177.9 is a YoY loss from 180.27, right? What have I missed here, because I know Cara is usually pretty good with the statistics.
Jeremy,
Woops, I was looking at December being 175.55 and thinking we were in November already, which we're not.
We still might reach YoY gains by December though, or certainly January (171.97), if that -2% MoM doesn't come soon enough.
I just think we should all be prepared for the huge fanfair YoY gains will garner in the press.
"The Anonymous said - it seems a bit unlikely we will drop the remaining 15 points by March."
We dropped from 185 in Oct 2008 to 165 in March 2009 (20 points). If anything, it is a much easier target from 179 this year.
March 2009 165.92
February 2009 168.04
January 2009 171.97
December 2008 175.55
November 2008 180.27
October 2008 184.82
spider,
Except that this year we no longer have the huge REO inventory in the low end to help us along. This year the drops need to be coming from the move-up market, and from the move-in ready market. Last year, and the year before, the index got a ton of help going downwards from the banks unloading ill-kept properties onto the open market.
With the sub-400k PWC stabilized at a sustainable level, and investors heavily in the rental market and bulk market it will be a lot harder to get all the way back down to 165. Not to mention all of last years shorts coming back as real sales at full market value as flippers sell them off.
More importantly the abject fear that was present in 2008 has clearly abated. Don't underestimate the power of fear.
"Spider said...
We dropped from 185 in Oct 2008 to 165 in March 2009 (20 points). If anything, it is a much easier target from 179 this year."
Spider, you are totally ignoring the trajectory of the declines -- the YOY trajectory started to improve in Jan 09 (from -19.60% YOY in Dec to -19.34% YOY in Jan), and has been improving since.
Moreover look at MOM the drop this October (-0.41%) versus last October (-2.73%) or even Oct 2007 (-0.74%). Clearly you can see there isnt a ton of "oomph" in the current downturn to suggest it will get down to where it was in Mar 2009 by Mar 2010. Even if whe start dropping by 1-1.5% a month we will still turn YOY positive soon, (meaning the bottom was March 2009).
Now, does that mean that it cannot happen? Of course not. However, I see nothing that is going to happen between now and March of 2010 that will turn a period of gentle, seasonally typical declines into a period of scorching, monumental declines like we saw last winter. Do you?
Octob
spider,
And don't forget market momentum. It's a heck of a lot easier to continue to plunge rapidly when the prices were already falling at over 1% per month for all but two of the previous twelve months, than it is to start falling at that rate from a turning point.
Things are a lot more subtle than you make them out to be. For instance that blanket statement about the Fed. Didn't you notice the Christmas Eve notification that basically lined up the government's back-up plan for keeping mortgage rates wherever they want them? Fannie and Freddie have been officially unhinged from the laws of economics. The Fed may stop buying, but the GSE's have just been given more leeway to keep rates down and do more modifications to keep supply down too.
Cara said...
"Didn't you notice the Christmas Eve notification that basically lined up the government's back-up plan for keeping mortgage rates wherever they want them?"
This is what I was alluding to earlier when I said housebuyer's comment was controversial. Does the mortgage rate always follow the 10 year treasury, or will government intervention prevent rates from going up the full 0.6% the treasury went up? I don't know enough about it to say for sure.
"Moreover look at MOM the drop this October (-0.41%) versus last October (-2.73%)"
I think that the 8k buyer bribe played a large part in this October's number being so mild. If not for that, I believe we would be somewhere between the 2007 and 2008 numbers as far as MoM declines. The MoM declines should accelerate from here now that the urgency to buy has been removed.
Can someone remind me if the city-specific numbers are inflation adjusted? I know we discussed it a few weeks ago, but searching this blog is a pain. I'm trying to figure out if a 0% flat MoM number is really "flat", or still a winning situation for those of us sitting on the sidelines.
Jeremy,
Take a look at Krugman's blog.
The spread is not a fixed number. Whether the GSE's will succeed in buying enough mortgages to dictate a lower spread between the 10-year treasury and a typical 30-year mortgage remains to be seen, but it's definitely amongst the possibilities. Presumably that is percieved to be more politically palatible route compared to extending the Fed direct pruchases of MBS's any longer.
The city specific data are not inflation adjusted.
now, whether Harriet is posting the Seasonally Adjusted numbers or not, I can't recall.
Did inflation actually tick up enough recently for it to matter over the short term?
Cara, Anonymous,
I am not saying it is gonna happen by March. I also think 8k tax credit is a wild card until it disappears in April.
Having said that, assuming "CS has no chance to drop 14 points" (when it dropped 20 last year) is little bit "awkward/out there" by itself - even if you somehow ignore the government intervention factor of this summer.
Cara -- Harriet's numbers are not seasonally adjusted. On a seasonally adjusted basis -- prices went up +0.2% in October.
The market is still very weird,
Lots of people are just behaving oddly.
look at my favorite Slum
http://franklymls.com/DC7194108
Marked down almost 60% but
still can't close, it's been stuck for
months
but across the street
http://franklymls.com/DC7146047
nothing, for 151 days.
http://franklymls.com/DC7092261
again stuck in UC for months...
http://franklymls.com/DC7137895
priced over list and not moving
http://franklymls.com/DC7202638
yet this bid high
honestly i'm convinced the market
is now starting to exhibit schizophrenia.
Some property bids low and kicks off a bidding war, some property gets into a bidding war but doesn't finance,
I don't know what's going on really.
spider said...
Cara, Anonymous,
I am not saying it is gonna happen by March."
Well something is going to happen soon isnt it -- less we end up going YOY positive.
Earlier in this thread you said "Wait & watch November and especially December, very closely."
What exactly should we be "very closely" watching in the next 2 months?
What we will be watching in the next two months is snow, rain and cold weather. The interesting part won't happen until March - June.
Did you see this article in Monday's Post? The reader comments are as interesting as the story.
D.C. housing market's collapse lessens developers' swagger
Jeremy & Robert-
If you refinance you may have to pay a point which is 1%. I was not saying prices need to plummet I was just saying prices would fall 2%. If you don't think this is the case you can probably buy a point or 2 if you are willing to may the extra 0.6% in interest. That is always an option.
Anonymous,
I meant watching CS closely to see it trend back down more through Nov/Dec/Jan/Feb. March & April could be tricky given another looming deadline of the 8k credit. You will be surprised how many people can't pass up free 8K for an opportunity to lose quite a bit more. (I met couple of them over the weekend who barely know what they bought or what it's worth - they are just happy they are getting 8k back. There are flippers, builders & RE agents knowingly taking advantage of such buyers)
Can we see YoY gain...we could. I agree with Cara, media might celebrate right before reporting the double dip in housing. Media twists the truth all the time - seasonally adjust the numbers when it is convenient. Use YoY vs MoM when it's favorable.
You as well as I know very well that housing futures market is still predicting our region to trend all the way down to 160 by March.
Spider-
I agree the media is very biased, although I don't think it is in a particular direction. Some bias things to be overly positive others bias it too be overly negative. There is always an "expert" willing to say the market will sky rocket or plummet and the media is always there to write an article about it.
Spider-
It is possible that we get to 160, but I doubt it. There is much less fear in the market now to cause a huge fast drop. Last year the market was falling quickly, causing people to get overly worried. Now things are not good, but there is way less fear to cause it to drop 15 points in 5 months.
Rumor Mill:
http://www.youtube.com/watch?v=wwI-qyPXWLE
Jim the Realtor source at BoA.
100K foreclosures in 2009, expects 600K in 2010. (good stuff starts at 3:53)
http://franklymls.com/DC7226585
check out the price history,
drop drop drop then up 100K????
pat-
It looks like a flipper bought it in October gor 75K and fixed it yp and is trying to make a hefty profit. Who knows how much work they did though
Another item people are forgetting is that unemployment is much higher for October 2009 vs 2008 (4.5% vs 3% in Fairfax County). Don't you think this might help get us back down below the low of 165 from last March?
WaPo reporting today that DC pop gained in 2009 and is now past 600k. One thing population gains do not do is force down housing values or rents.
"WaPo reporting today that DC pop gained in 2009 and is now past 600k. One thing population gains do not do is force down housing values or rents."
That may be, but it is also worth noting that the District's population had been falling for a long time even as its housing prices rose. The relationship between population changes and rent/housing prices is more complex than it may appear at first glance.
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