The S&P/Case Shiller® composite index for the month of June was released today.
"'This month’s report showed mixed signals for recovery in home prices. No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates. The National Index was up 3.6% from the 2011 first quarter, but down 5.9% compared to a year-ago,' says David M. Blitzer, Chairman of the Index Committee at S&P Indices. 'Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities – Las Vegas, Miami, Phoenix and Tampa – as well as the weakest of all, Detroit. These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together.'You can see the prior data we had in the post for May's CS numbers on this blog. The price gains have been adjusted downward.
'As with May’s report, June showed unusually large revisions across the same MSAs – Detroit, New York, Tampa and Washington DC. Our sales pairs data indicate that, once again, these markets reported a lot more sales closing in prior months, which caused the revisions.'"
22 comments:
kevin is going to love the revisions to the past 9 months when he sees this data - especially the last 3 months really being YOY negative.
He sure will. In fact, let me repost this here so there is no doubt he sees this.
Kev -- for the record. You were pointing out how the CS revisions were continuously being lowered and (if continued) may prove that prices are lower on a YOY basis.
You were right.
More than that, I was wrong. And not only was I wrong, but I ridiculed you for even suggesting this was somehow an important trend. Well it was, and I was a fool for not seeing it, or even attempting to see it.
I want this post to serve as total vindication for you. I want you to savor this moment of redemption. There is no reason for me to spin or deflect or otherwise try to explain away what happened. The fact of the matter is very simple. You were right and I was wrong.
Anon
Bidding wars are stupid. Calculate your returns, figure out where you want to be, and if you want to make a BAFO, make a BAFO, but, try and estimate where to put a bid and keep it.
Given where we are, i think lots of people are underwater, and they are finally hitting their squeal points themselves.
http://www.washingtonpost.com/national/virginia-house-painter-fights-to-keep-business-as-recession-becomes-a-way-of-life/2011/08/26/gIQAiIYHoJ_story.html
I'm sure he's in the market for a move up property.
Or his 4 former employees.
And i'm sure he's going to vote to increase federal spending.
Pat-
In the exurbs or less desirable parts of DC there are still some people who are significantly underwater, but most of DC, Arlington, Falls Church, Tysons, Fairfax... prices are down at most 20% from peak. After 5-6 years of paying their mortgage they should have paid off ~10% assuming they put nothing extra in. If they also put 5% down that would mean they are 5% underwater. If you look at the statistics very few people nationally walkaway unless they are deeply under water and this just isn't happening in this area.
Uprooting the family and taking the credit hit just isn't worth it to walk away from a house that is barely underwater. So sure some people in manassas or anacostia may walk away because they are 50% underwater, but for the rest of the areas you just shouldn't expect a mass exodus.
"pat said...
Anon
Bidding wars are stupid. Calculate your returns, figure out where you want to be, and if you want to make a BAFO, make a BAFO, but, try and estimate where to put a bid and keep it."
So, lets say your BAFO was going to be 250K. There's an offer on the table for 200K. Should you not (gasp) enter into a bidding war and offer 205K?
Perhaps 200K was the other guys BAFO. If you really think the place is worth 250K (i.e. it would have been your BAFO remember), what is the harm for getting it for 205K?
Can you not see this? I think you can, and you just dont want to admit it. You laud me for coming clean and admitting to kevin how wrong I was, and yet you still cannot admit that sometimes, for some people, bidding wars actually make sense?
Anon Says:
"
So, lets say your BAFO was going to be 250K. There's an offer on the table for 200K. Should you not (gasp) enter into a bidding war and offer 205K?
Perhaps 200K was the other guys BAFO. If you really think the place is worth 250K (i.e. it would have been your BAFO remember), what is the harm for getting it for 205K?"
Because greater benefit accrues to me if the other guy gets it at 200?
Every deal that sinks down, poisons comps.
Here, take a look at 2005, 2017 and 2025 E St. 3 units all identical all on the same block. One listed for 110, one listed for 235 and one listed for 385K.
What's the real value?
if a bid war starts and the 110 unit goes for 250, then the 235 unit will also rise to 250.
But if the bottom unit goes for 110, then what happens to the other two? You can't get comps after that.
It's why people hate foreclosures, they mar the appraisal pool.
"Pat said...if a bid war starts and the 110 unit goes for 250, then the 235 unit will also rise to 250.
But if the bottom unit goes for 110, then what happens to the other two? You can't get comps after that."
Thats fine Pat -- you are saying bidding wars can either hurt or help comps. No offense but thats kinda obvious.
My main point, which you have thusfar ignored is that I believe that for some people, some of the time its OK to enter into bidding wars. This is in direct contradiction with your statement a few months ago (i.e. No one should ever enter into a bidding war -- ever).
My suspicion is you know this, but you are too stubborn to admit your prior stance on bidding wars is wrong. The supreme irony is, given the low end properties you bid upon, and the fact that you havent been sucessful, leads me to believe that you yourself do
engage in bidding wars from time to time.
Really this is just an exercise in intellectual honesty. If someone was selling a house for a dollar, and you engaged in a furious bidding war where you bid (and won) with the price all the way up to $10, no one here would fault you for it.
Thus, the question here is can you admit its ok for some people to engage in a bidding war some of the time? You laud me for coming out and admitting how deeply wrong I was about the CS revisions, yet you seemingly cannot bring yourself to admit your prior stance that "no bidding wars ever" is wrong?
Come on pat. You can do better than this! So again, for the record, do you still think that an absolute ban on all bidding wars all of the time, is the correct course -- or are you willing to concede a bidding war is OK in certain situations?
Anon
You obviously believe you are intelligent, so i'll suggest you look up Nash Equilibrium.
Bidding wars are a classic fail of game theory, a minor improvement for one player that is a net loss for all players.
By eschewing bidding wars, comps poison out, particularly in an environment of stagnant or declining prices. Hence, it's a net system or social loss to engage in bidding wars.
You argue that it's better to engage in a bidding war if that takes you to 249 on a 250 property, and mathematically you can prove that to be true even when the price is at 210. Sure.
But if the game has multiple rounds and multiple entrants, the game has a better outcome for buyers if they eschew bidding wars, let a shot go off at 210, and then
the next seller has to comp out at 210.
That's why Obama and Bush had to start the Buyers bribe, they were desperate to get fools to engage in bidding wars by throwing them all 30K chips.
Eschew the foolishness of the banks, and one can prosper.
of course i'm suffering with my 1070 rent on my 2BR off columbia pike. It's awful that i have to rent space instead of renting money.
When I could be living in luxury, as a homedebtor at places like Myerton Condos. Oh, Right, yeah.
Myerton is back to apartments again.
Game theory says bidding wars are a bad idea, now if you want to bid war up to 249, go for it. Have fun.
Try and make it cash flow.
Cheryl makes one bid as a BAFO.
She's good at sizing things and she knows reston.
Me i'm looking for quads and triplexes, it's a much narrower field.
Hey Pat,
In theory, theory and practice should be the same. In practice, they seldom are.
My $0.02
Pat-
How is bidding on a house have anything to do with Nash's equilibrium. Nash's equilibrium assumes that every player has full knowledge of what every other player's equilibrium strategy is. Seeing that you have absolutely no idea who the players are much less their equilibrium strategy I would argue his theory is not relevant for your game.
I would also argue that seeing that you have something to gain from entering a bidding war on a house that is below fair value every player has an incentive to change their strategy so it wouldn't be a Nash equilibrium. Also not having bidding wars can only work if you can have collusion, but yet again there are too many players in the game and you don't know who the players are so you can't collude so just because you let them win the first house for under fair value does not mean they will let you win the second house for under fair value
Finally your premise is that there will be many rounds of this game, but seeing that if you get a good deal you will get the house and probably be done with the game I don't think you care how future rounds of the game turn out.
Anon, no worries. It was just a theory at first, and just a guess per the last conversation we had about it. Nothing too significant in the near-term, prices are still quite a bit higher than they were at their "bottom" in early 2009.
I remain unconvinced that the fundamentals can support these price levels, not by a long shot, as we discussed a few weeks ago about the parity between household income, home prices, and rental rates.
There is an impending convergence in these factors, and I don't see how this region is going to have significantly higher income growth (than the rest of the country) to prevent price declines if the past decades' growth might creates a regional income reversion of its own.
Hence, for the price disparity, I am not just renting because I'm "scared" of what the market will do; it's because in my area (Fairfax/Vienna) it is ridiculously cheaper to rent than own.
Rents and household income are consistent with each other in the area, as would be expected. Home prices are detached from both of them for reasons that cannot be explained with supporting empirical evidence/data other than a lapsing regional bubble. YMMV of course, some parts of the region aren't nearly as overpriced IMO as others, but my observations are focused mostly on what's happening around me since I'd sooner die than live in Manascar:)
Also, I haven't had a lot of time to do housing-related research during the past month, but I've been piecing together the past editions of C-S data to see what's going on with these revisions, or if there's anything that can become predictive. I can tell so far that the revision numbers' decreases from the initial numbers are going up every month, as I believe I've pointed out in another thread. Almost have enough data to investigate or nix a hypothesis as to whether it's a seasonal issue. That is, the gaps in their initial numbers are filled with seasonal expectations (same model they use for their seasonal index), which for whatever reason does not reflect the seasonal activity in this area due to our economy's uniqueness. Just brain farts, but could be something.
If anybody has suggestion on how to post google doc spreadsheets into the comment section of the blog, please let me know. I've had zero luck since it appears to reject the item tags included within the code.
HB Says
"How is bidding on a house have anything to do with Nash's equilibrium."
Dude, try reading up on game theory.
DC's list of vacant property grows:
http://www.bizjournals.com/washington/blog/2011/08/dcs-vacant-property-list-mushrooms.html
Pat-
Did you read my comment? I gave you at several very significant differences between what Nash's equilibrium implies and what is the reality with the housing market. If you disagree with these I would like to know why, because I am confident most if not all of them are correct.
Sure its been a few years since I took game theory classes, but I am still very confident that my understanding is significantly higher than yours. I explained why bidding on a house does not qualify a Nash equilibrium, but if you know so much about game theory please explain how the two requirements of a Nash Equilibrium hold in this case.
1: All players know all other players equilibrium strategies are
2: No player can gain by changing his/her strategy based on other players equilibrium strategies
HB
" Nash's equilibrium assumes that every player has full knowledge of what every other player's equilibrium strategy is"
Only in simple games.
" Also not having bidding wars can only work if you can have collusion,"
no, it also works where the sellers exceed buyers, or if buyers avoid frenzy or just make single round bids.
"but yet again there are too many players in the game and you don't know who the players are so you can't collude so just because you let them win the first house for under fair value does not mean they will let you win the second house for under fair value"
define fair value.
"Finally your premise is that there will be many rounds of this game, but seeing that if you get a good deal you will get the house and probably be done with the game I don't think you care how future rounds of the game turn out."
it's amulti seller, multi buyer game.
HB
If game theroy wasn't applying, why have Obama, Bush, Goldman and Bernanke been so desperate to keep supply off the market?
they are gaming buyers.
it's fortuitous that Mike pointed out the vacant housing list is exploding.
Pat-
I agree that some game theory is involved in buying houses I was just arguing that what you were talking about was not a Nash Equilibrium.
Even without game theory if the government doesn't want the price to fall and they look at a simple supply demand curve it would say that if you add more supply the price will go down. The reason they don't want prices to go down is that due to the wealth effect people will feel poorer and cut back on spending, which would hurt the economy. Obama/Bush's plan is/was to slow down inventory hitting the market until population growth can support excess housing units.
HB
actually Obama/Bush/Bernanke are trying to bail out the banks.
by keeping house prices high, they are hoping the banks won't have to write down Tier 3 assets.
They are making lots of people poor, the elderly, the savers, what they are doing is making the debt slaves
feel better and not want to revolt.
In Greece you have a revolt of the slave classes, same in Iceland, London, Paris, Israel, Egypt, Libya.
Obama is terrified they will come for him.
So by keeping the debt slaves happier, he hopes the elderly won't go after him.
impoverishing Grandma so you can keep wastrels in debt is not a net growth in wealth.
and be aware a nash equilibrium can exist for any game, but there may be a mixed strategy.
personally I believe by not chasing after the shiny thing, the sellers are in a problem where
demand destruction continues.
Kevin,
I don't see a downward trend as too worrisome. It's a matter of duration and severity. I still believe that we will slog along the bottom for a number of years - the question is which bottom. If we break 3/09 I will be surprised.
I've heard just recently that reo agents are getting alot more inventory (and already have it pre-list). From what I gather it's more of the same; low-end and exurbs.
I reject your premise that prices "have to come down" and are not sustainable. Prices have come down and the cost of borrowing is exremely low. Any analysis that ignores the cost of money and the affordability index is flawed.
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