The S&P/Case Shiller® composite index for the month of April was released today.
"'Home price levels remain close to the April 2009 lows set by the S&P/Case Shiller 10- and 20-City Composite series. The April 2010 data for all 20 MSAs and the two Composites do show some improvement with higher annual increases than in March’s report. However, many of the gains are modest and somewhat concentrated in California. Moreover, nine of the 20 cities reached new lows at some time since the beginning of this year. The month-over-month figures were driven by the end of the Federal first-time home buyer tax credit program on April 30th. Eighteen cities saw month-to-month gains in April compared to six in the previous month. Miami and New York were the two that fared the worst in April compared to March. New York is the only MSA to have posted a new relative index low with April’s report.' says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. 'Other housing data confirm the large impact, and likely near-future pullback, of the federal program. Recently released data for May 2010 show sharp declines in existing and new home sales and housing starts. Inventory data and foreclosure activity have not shown any signs of improvement. Consistent and sustained boosts to economic growth from housing may have to wait to next year.'"
30 comments:
Cara & Anon-
It looks like the prices are in for a lot more volatility than I expected. I guess we will likely see some additional gains over the next couple of months as more tax credit houses close. I assume all of these gains will go away once the credit is gone, but this will mean much movements than we have seen in a while. I still will stick with my original thesis that the bottom will be very close to the previous bottom of ~165, although it may take longer than my original 1 year estimate to get there.
Holy freaking moly.
2.36% up on a 3 month rolling average? Real MoM must have been closer to 5% or higher. April will still be in May and June's numbers as will the tax credit, but I say we should just ignore all three and expect CS for the DC metro region to return to the 175 of March (or continue lower from there) by July or August.
If free money bumps things up by ~5% in a single month, then no free money should at a minimum erase that.
But 5% overpaying on a $330k house (too lazy to look up the real median) is $16k. Borrow $16k to get $8k in cash now. Yup sounds like the American mindset.
("should", ah the falicies of "should")
Cara-
I don't think the gains will go away as quickly as they came. I am sure the sellers will refuse to sell because the recent comps were higher... So it will probably be a bit of a stalemate with prices falling slower than they rose.
HB, think of it this way. You were so right for so long about Case Shiller that I was beginning to think you were infallible. All that happened was the law of averages caught up to you :)
Oh and for the record, I was expecting at most a +0.2 or +0.3% gain, so this +2.4 means I was wrong too.
hb,
Are seller's really that dumb as to not recognize that the current buyer's aren't getting $8k? Won't a lot of them "have" to offer it as a subsidy if they want the gross to be the same? I think there will be a lot fewer sales in general starting in July and inventory will start shrinking again soon as seller's get afraid of putting their toes in the water without the $8k bribe out there.
Anon,
likewise, I didn't bother to think of a specific prediction, but while I did expect the -0.5% MoM drops to pause, I didn't expect +2% until at least the June closes from the final rush of $8k buyers. Instead based on contracts I'm thinking we may see MoM declines again in CS as soon as May, because buyers who were willing to overpay had to also be totally confident that they'd be recieving the $8k, and there was a glut of unsold inventory out there at the end of the $8k so they should have gone for less. (although that was only true 1/4 of the time in my neighborhood).
So, I'm in the, this will be erased very very quickly camp. Back to 175 as soon as June and no later than August, even with the 3 month rolling average.
But, I'm almost always wrong about such specifics, so anyone reading should take that into account.
cara said... Borrow $16k to get $8k in cash now. Yup sounds like the American mindset.
i would say interests rate played a role; or, rather, the anticipation of higher rates did.
Given the slow down for May,
I anticipate either a continous
increase in inventory or price
declines.
pat
I'm not sure I follow your logic.
For inventory to increase new listings must be added. (not so for MOI). What about the huge slowdown in May would make more sellers think now is a good time to sell? Or are you thinking that the May contracts numbers are so low as to be below the current rate of "must-sell" inventory (either distressed or life changes-wise)?
Prices going lower, now that I can agree on since buyers are now just buying a house not also free money.
CARA
I think it's a pipeline, there
are those who must sell (Transfers,
job loss, divorce) and those
who want to sell (Move Up, Move down,
move in, move out, Retirement).
Now if the sales inventory is entirely discretionary, then yes,
the number of units will completely run out. If the inventory is completely mandatory it will overflow.
I suspect it's 50:50. There will be those testing the waters and
putting high prices and not negotiating, because they don't want a short sale.
But there are plenty of forced sales. REO coming out, etc...
pat,
Yup. 2 flow rates into the pipeline, discetionary and mandatory.
If we are already running out of discretionary inventory, then the continuation of mandatory inventory (and probable?/possible? increase thereof of REOs) would imply a continuing rise of inventory going forward as sales fail to soak it up.
The reason I doubt we've run out of discretionary sellers in FFX Cnty at least is because we are now well above the inventory lows. PWC, and possibly Loudon are probably as close to purely mandatory as ever happens in reality. Arl and Alex I think still have a lot of (delusional?) discretionary sellers given their inventories didn't decrease as drastically.
(recharts isn't coming up right now so I can't use solid numbers)
So there's the two flows into the pipeline, and the question of where you're speaking of.
housebuyer said...
"I don't think the gains will go away as quickly as they came. I am sure the sellers will refuse to sell because the recent comps were higher... "
As somebody that sold three years ago when MoM prices were tanking, I can tell you that doesn't matter a single bit.
Kevin-
That was basically three years ago there were tons of stories about how housing significantly overvalued and the economy was starting to fall apart. I think people are more confident now that thinks aren't about to implode. Maybe I am wrong.
Anon-
I don't mind being wrong I just don't like the magnitude of my mistake. Seeing that I invest for my job I know all I need to do is be right more than I am wrong, but having errors as big as my recent prediction is what you call a fund ending event in our industry :)
HB, actually at that time people were sort of in denial, like they are now. Every month prices dropped, and people always thought that was the bottom, clinging to yestermonth's prices. Those that priced aggressively sold, those that didn't ended up paying in the end. Sellers collectively cannot manipulate the market with their minds. If prices are too high and there isn't too much manipulation of the demand through subsidized purchases and surreal interest rates, prices have to fall regardless of the majority of sellers that are stubborn.
Kevin-
I am not sure things happened as quickly as you remember. I don't think sellers can hold the market up long, I was just saying I don't expect prices to go from +2% MoM to -2% MoM in a 1 month period.
If you look back at the CS numbers you see prices were only slightly 0.5-2%/month in 2005, by 2006 prices were up -0.5 to 0.5%/month. In 2007 they were -0.5% to -2%. In 2008 were down -1% to 2.5%.
So it wasn't like the crash came out of no where prices went slowly from very positive to slightly positive, to slightly negative to very negative. I am just saying I expect we will see a little of this effect. AKA the next couple of months will be positive and then go slightly negative that very negative.
I don't think it's completely fair to compare now to then in terms of market pace. We're coming off of a ridiculous binge from govt manipulation, with a certain end date. This wasn't really happening a few years ago.
Kevin-
My comment is sellers will take a couple of months to come back to reality. I am not trying to say it will be some crazy long period of time. I agree that comparing now to then isn't fair, but I was just trying to rebut your comment that in 2007 you saw things change quickly.
As a side note I am curious how long we can see people scare away from anything other than treasuries. The ten year is now at 2.95%, which will yield ~4.5% mortgage rates if the 10 year stays here. As the economy continues to weaken I would not be surprised if we start seeing additional quantitative easing measures.
I think that the upswing in prices might draw out a lot of the delusional sellers that think the downturn in prices was something temporary, thus flooding the market with more overpriced houses. Not sure how that would effect the median prices, or if that kind of inventory is even worth noting, but whatever motivated and realistic sellers that are out there are dealing with a record drought of buyers.
So yes I agree that sellers in the aggregate will respond slowly, but the only sales that will occur during that time will be the astounding "deals".
Redfin says "low and middle tier shoot up as tax credit expires":
Redfin's take on CS
Ace,
I don't think using 2000 as a base results in a proper analysis. Going back to 1990 and examing the flat decade and considering whether any "catch-up" was in order should be considered.
As to the charts; it's no surprise that the lower tier went way higher during the era of fogging a mirror to get a mortage. This obviously has skewed the relative "correction" required to reach whatever the historical price point should be. Note that upper end (as I've always contended) rose at a much more moderate rate.
With that in mind, coupled with interest rate considerations, I find it hard to expect more than the moderate up and downs we saw over the 90's.
Traditionally, july and august are dead months for re transactions. The wild card is the number of forced sales that come on the market. I think all tiers are about where they should be.
Now, time to throw a bag together and get out of dodge for a week.
VA_Investor,
Yes, I think we've made the point several times previously that the "high tier" did not increase as much as did the "low tier."
Also, in one sense these three tiers represent for most NoVA areas, condos vs. condos/townhouses vs. SFHs -- or possibly, outer vs. inner suburbs. The "high tier" is ~$430K. I don't think you can find many SFHs in Alexandria, Falls Church City, and Arlington that are that price or lower, due to the land costs. It's probably also true for most of Fairfax and Loudoun Counties. Maybe less true for some parts of PW and outer counties.
As for starting in 1990 vs. 2000, other than the loosy-goosy loan standards in the 200s, and the government supports today, I think market conditions have always played a role. So the 1990s values represented the market conditions--unless there was some sort of non-market factor forcing the housing prices to something other than those set by supply and demand (along with the tax incentives that have been around in some form for awhile).
2000s, that is.
Here's more Redfin commentary. Of course, it's been stated many times here how important it is to focus on the local, vs. the national, market.
Dude, Where Are The Homebuyers? (June Newsletter)
"...But after that, we’re almost certain the market’s going down. Outside of California, the number of people visiting our website is still high, but as we immediately noticed in May, they’re visiting less frequently. Fewer customers are touring properties, and fewer are making offers. The only increase in activity outside of California has been an uptick in customers listing homes; this has been a good development, as old inventory has been piling up that nobody wants to buy...."
By the way, the 2nd story in that blog linked above is about a Redfin agent who is among the people accused of being Russian spies. Intrigue!
Talk about a stubborn seller, FX7192483. 243 days at the same price before finally lowering it. The MLS comment even says, "Yes, many days on market means Seller not taking low offer." I needed a laugh like that tonight.
Ace,
The 90's are just pointed out to show the cyclical nature of RE. I will take some credit for pointing out the disparity in price increases among the tiers (several years ago) as the main reason behind the different prices drops among tiers.
Often when I hear "we've" discussed this" or people not attributing insight, it annoys me. Common knowledge was not always common knowledge.
Um, several years ago you were still claiming there wasn't a bubble and that it was as likely we would see major price increases as decreases.
Lets not go re-imagining your record again huh?
"Lance pointed out Ken Harney's column in Saturday's Post. I had already read it (I read it every Saturday). It was interesting and should give pause to some of the most ardent BH's on this forum.
The Article about apartment vacancies was also interesting. Rents clearly are not dropping, increasing by an average of 4.7%. Having a little more choice does not equal "blood in the streets".
The most interesting Article was on page one of the Business Section. A poll, conducted last month, of 54 top economists revealed that NOT ONE expects a recession in the next year. The clear consensus is that the Economy is on sure footing with strong employment numbers and increases in manufacturing.
The FDIC study that I referenced last week examined the history of Housing Booms and Busts and concluded that, absent some shock to a local economy, busts do not follow booms as a matter of course. In fact, if I recall correctly, busts occurred in only 17% of the instances cited and ONLY when local economic problems existed. It is ironic that BH's dismiss this study by saying "it's different this time" - the same language that HH's are ridiculed for using.
What we are witnessing is a normal RE cycle and, according to sources referenced above, the worst may be over. I see no evidence suggesting a bursting of any bubble. "- VA_Investor 7 Jan 2007
http://bubblemeter.blogspot.com/2007/01/bubblesphere-roundup.html
"I think that it is quite possible that prices will drift lower in 2007, but I have no crystal ball and won't pretend to be any sort of "fortune teller". This spring season should be very interesting.
If I wanted a house and could afford a fixed-rate mortgage, I would buy. I certainly wouldn't count on being able to sell unscathed in less than 3 to 5 yrs. The fact is that it is just as foolish to expect major price declines as it is to expect substantial appreciation."- VA_Investor 7 Jan 2007
http://bubblemeter.blogspot.com/2007/01/bubblesphere-roundup.html
"Lance is right, it is a gamble. I would buy if I could afford it. Lock in an affordable payment for te next 30 years. The gamble is that prices will fall and interest rates will remain stable. It is a fool's game unless you have some superior insight that no one else has. The truth is that short-term (5yrs or so) no one knows. Hell, if it was a sure thing, there would be no debate. What we do know from history is that buying a house is a smart move.
I never worried about this stuff when I was starting out. My dad told me to buy when I was 22. Good enough for me (I was lucky to get such good advice). You people have much more info than I had. We all know that we are well off the highs. I think renting is as much of a gamble as buying. So my conclusion is buy if you want to; rent if that makes you more secure."- VA_Investor 10 Jan 2007
http://bubblemeter.blogspot.com/2007/01/bubblesphere-roundup.html
Etc etc etc...
Of course in retrospect Jan 2007 was barely even the start of the bust.
... but then as VA_Investor said:
"Common knowledge was not always common knowledge"
Leroy,
Remarks taken out of context are not often an accurate depiction of a writer's thoughts.
That said, the disparity of price increases among the tiers was fact that was ignored by the "it's moving in" crowd and others (such as you?) predicting 40% drops in N. Arlington by 2007 or 2008. How'd that work out anyway?
Was there concrete evidence of a "burst" in early January of 2007? I never said prices would continue up. In fact, I mentioned ad nausium that I had not put new money in the market since 2003 and was quite surprised that the craziness continued beyong that.
I didn't walk on 4 or 5 new construction contracts in 2005 or 2006 because I thought prices would continue to rise.
I often played devil's advocate to the "blood in the streets" crowd and the younger generation that believed the world would fall apart, yet they would be unscathed.
I talked about demographic's regarding certain areas and why prices would not crater across the board.
Show me your comments predicting the extent and length of this depression. The consensus of 52 top economists failed to recognize it coming.
In January 2007, a bubble burst had not yet happened and dramatic declines were just beginning to be seen in the lowest tier and in marginal (Hispanic dominated) neighborhoods.
I'm quite sure you predicted the "shock to the economy" that occured in the fall of 2008. Perhaps you could show a post around January 2007 where you predicted that occurence?
The fact is that I did predict 25%-40% declines which I had witnessed first hand in the early to mid '90's. After that correction, I predicted a flat market for years.
Kudos for you if your predictions were more accurate. Take a bow and link the threads.
Ace,
The Redfin charts are always nice representations of CS, thanks for the link.
In DC the middle tier went up the most. Securing that starter SFH or townhome apparently was were the action was.
(A larger investor and retiree portion for condos should have muted the low tier's response to the credit).
Kevin,
So have you seen a bunch of new listings that are coming up trying to grab the prices of recent comps? New listings have totally dried up around me, there are only 3 active listings in a neighborhood of over 1000 houses compared to 7-9 at the end of April. (2 of which gave up and delisted, the rest went under contract in April or May) But I don't know what's representative or what's going on in your neck of the woods.
Cara, I haven't been following any specific neighborhood lately so I couldn't tell you. I do see a lot of houses hitting the market though, at a much higher rate than this past spring. I can't access my data here at work, but the inventory seems to be swelling in 22030.
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