I knew it would be bad, but I didn't expect it to be this bad. I wonder if the OFHEO number will be bad too. I think the Case-Shiller number is a better reflection of reality.
--
Case-Shiller Home-Price Trend Since the Credit Crisis Began
The effects of the credit Crisis began showing in transactions that were initiated in July 2008. Case-Shiller monthly reports look at transaction over the 3-month period. Therefore, the first report that contained only the transactions since July 2007 was September 2007. The Annual Rate of price change since the September report for various metros and composites are as follows (6-Month Annual Rate).
____Metro \t6-M Annual Rate%
Phoenix - AZ\t-33.8%
Los Angeles\t-33.9%
San Diego\t-30.7%
San Francisco\t-33.5%
___Denver\t-15.3%
Washington\t-22.1%
___Miami\t-30.0%
Tampa - FL\t-24.8%
Atlanta - GA\t-15.5%
__Chicago\t-16.4%
___Boston\t-13.8%
___Detroit\t-25.6%
Minneapolis \t-25.0%
Charlotte\t-5.3%
Las Vegas\t-37.1%
New York\t-9.2%
Cleveland - \t-17.8%
Portland\t-11.8%
Dallas - TX\t-9.8%
Seattle - WA\t-13.5%
Composite-10\t-23.5%
Composite-20\t-22.6%
--
REAL ((inflation-adjusted) Case-Shiller Home Price Change since December 1995
____Metro \tREAL Price Chance Since dec'05
Phoenix - AZ\t48.0%
Los Angeles\t99.8%
San Diego\t84.6%
San Francisco\t78.9%
___Denver\t24.5%
Washington\t63.1%
___Miami\t71.4%
Tampa - FL\t49.1%
Atlanta - GA\t8.9%
__Chicago\t26.4%
___Boston\t57.3%
Detroit - MI\t-10.2%
Minneapolis\t32.3%
Charlotte \t6.7%
Las Vegas\t34.9%
New York\t77.7%
Cleveland \t-12.2%
Portland \t44.7%
Dallas - TX\tNA
Seattle - WA\t71.8%
Composite-10\t72.0%
Composite-20\tNA
Two cities, Dallas and Charlotte, showed increases in prices. That's the first time (unless I missed something) that any city in the 20-city index has shown a price increase since last August. Noise or signal?
By the way, this index is very persistent. You could have drawn a regression line through the past 5 months' y/y readings and come within 0.5% of the March result. (I needed to say something about the outlook, so that's what I did.) That makes sense, since the factors driving the price trend are also quite persistent. The implication, though, is that this sucker won't turn the corner anytime soon.
At least technically, it looks to me like a possible reading of 105 in late 2009 if there's no overshoot, but my crystal ball is wonderfully unreliable.
I wonder what would happen to banks if they had to reserve losses based on Case-Shiller instead of OFHEO numbers. I wonder what their LTV stats would look like. It would probably be a bloodbath.
the stunning part may not even be reflected in the numbers yet. consider:
particularly in the northern states, there is a pronounced annual cyclicality to prices. they tend to rise above trend from february to may as the 'selling season' gets into gear; but then fall below trend from june to december or so, as buying pressure falls away and listings tend to be discounted to bring in more marginal buyers 'off-season'.
this relatively strong period is just ending now, and cyclical pressure will be applied to prices through year-end.
obviously another kind of cycle is dominating price movements at the moment. but those who think it cannot get worse (and i do expect some bottom-calling as a result of these figures) may be in for a surprise.
The pressure on FNM and FRE to re-categorize more losses, er, I mean assets to level 3 status will be simply "irresistible" and you know, if they can jump on the band wagon and have it all re-valued at historical values, perhaps they'll turn a fantastic profit. Financial alchemy at its finest. We are blessed to have some fantastic financial wizards at the helm of this nation and as stewards over all our pension plans. .... uh huh.
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
My sense is that the huge glut combined with mass foreclosures is pushing down prices quite rapidly.
So the situation may be fundamentally different from past downturns or situations like the Japanese downturn where lack of buildable space (I'm assuming) and high savings helped drag out the downturn.
These price declines we're seeing now, and by implication Greenspan's legacy, are truly epic.
--
"So, how many homeowners are there with negative equity rigth now?"
Estimates are close to 10,000,000.
If the price decline trend of the past six months were to continue for another 6 months we would be approaching 20,000,000. The foreclosure parade will get bigger and bigger and biggerer.
The US Financial system is in trouble, as it should be in a system of the Crooks...
Everything was foreseen by pessimists like yours truly. I was forecasting 50%+ decline for CA. It is happening fast and furious in many parts of CA.
NPR has an article this morning about complicity between loan review companies and Wall Street resulting in a wave of bad loans included in mortgage securities. While this aspect of the bubble is well known to readers of CR, the money quote came from a reference to the New Century bankruptcy proceedings. Apparently, recipients of New Century loans, primarily Bear Sterns, agreed to a maximum rejection rate of 2.5%. IIRC, this is one of the first, very clear, public acknowledgements of cooking the MBS books apriori.
I really don't think Columbia County is experiencing any sort of sellers' panic. Upstate New York really IS "different." Hell, prices are RISING in CNY and WNY which are not all that far from Columbia. Maybe your wife is right.
BTW . . . TONS of homes on the market up there. For sale signs dot the landscape like freckles on an irish lass.
I am very familiar with the area, having rented a home on Queechie Lake for several years. Do not buy anything there now. Almost half the homes are second homes of New Yorkers. The drive from NYC on the Taconic is 100+ miles each way.
As layoffs continue in NYC and as gas prices stay high, a lot of these homes will come on the market. You will have your pick. Wait, wait, wait.
Talk of a "bottom" or a "balance" in US home prices needs to reflect the worsening economic and employment situation. Id expect a healthier employment environment (in wages & salaries, not just job numbers) to produce higher bottoms compared to what we have in Q2 2008, all other variables being equal (such equalness being an impossibility, given the inter-connectedness of variables).
Also, talk of hitting historic trends & market bottoms circa 2008 need to reflect the magnitude of debt that borrowers are already carrying and "new", albeit possibly temporary, conservative attitudes by mortgage lenders. Based on the above, I doubt equilibriums or bottoms for any major city can now be pre-defined by historic trends.
Finally, a bottom aint no great accomplishment; are people hearing incipient upturn when they hear the word bottom? Realize that bottoms can be crater floors that last up to 7 years in the case of LA in one previous downturn.
Gary, I will add one other thing about Columbia County. There is virtually no economy left there except for tourists (NYC) and commuters (Albany). A lot of small businesses and stores have closed in the last few years. There's a little gentleman farming going on, but very few local jobs.
There's quite a contrast in the summer, when the local depressed economies get perked up for a month or so by the arrival of the Boston Symphony at Tanglewood. But the poor folks there are getting poorer by the day.
Yeow. There was a lot of doom and gloom around here in 2006, but did anyone predict that? I sure didn't.
Nope. The pessimists were forecasting huge drops, but over extended periods. In the face of data like this coming out of leader areas like San Diego I've been predicting that house prices will NOT be sticky since late last year. We're going to see a crash, with no historical precedent even in the Great Depression, with house prices reaching rent equivalence within a year. The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).
The drop will relent a bit for Q2 for the spring selling season and then return to even worse rates in Q3 or Q4. If people continue to believe in buying houses in America prices will level out in 2009 Q2 and volume will EXPLODE as renters clear out the huge REO overhang at prices below what they pay in rent. If the crash breaks American's faith in houses I have no prediction for the bottom.
mal, rich's perspective rings truer to me, sibnce we just spent a weekend up on both sides of the border (MA & NY) and there is an incredible amount of inventory.
Also, many places have been on the market 6,9,12 months. No kidding. And many are now showing as "Price Reduced" or "New Price". Many with shorter DOM have been relisted (honest relistings it seems . . . i.e. changed broker)
Gary, I defer to Rich - he has a point about the glut of NYC people who live there and probably want to sell. I sometimes forget how far north they've invaded at this point.
My analogy to CNY and WNY probably does not apply for that reason.
mal, what are CNY and WNY . . . central and western?
rich is right about the population up there . . . an unbelievable percentage of places are NYers second homes and there is very little industry. The reason many of the little towns are so charming is that there never was any . . . it's always been rural farm and vacation country.
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
an excellent and perhaps overlooked point, ac. this is becoming a housing slump to exceed any that preceded it -- its only relevant antecedent in the last 100 years is now clearly the great depression.
were house prices sticky in the deflationary years?
The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).
an even better point, fe. gearing has turned housing into something closer to more liquid capital markets.
"We have reached what I believe is the end stage of this trap in which the monetary system is forced to adjust through appreciation and inflation. The problem is that in such a case there is a huge risk that hot money inflows destabilize the adjustment process, and this seems to be exactly what is happening. Instead of reducing foreign exchange inflows, the appreciation of the RMB is causing massive hot money inflows (which is not at all surprising, but it has been made much worse by Chinas bad luck of having to adjust in the middle of the sub-prime crisis) and so the adjustment must be much more dramatic and much more painful. No matter how quickly China tries to reduce monetary expansion by appreciating the currency, in other words, monetary expansion grows even faster"
In the Greater Hartford region here in Connecticut, price decrease have been negligible. Houses may not be moving as quick, but prices are stubbornly high. Any house that is move in ready is a hot commodity.
I was thinking of Columbia County more in terms of being a place where Albany folks live - the Albany market, as far as I know, hasn't weakened all that much (the cash cow of state government employment being eternal). Years ago, Columbia County was unknown to NYC second home seekers, but I forgot how much that changed with the crazy prosperity down there. It's more of an NYC secondary market than an Albany secondary market now, perhaps.
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
On a macro basis, we are seeing rapid declines because it only takes a handful of sales to establish the index trend.
On a micro basis, I am seeing lots of stickiness - individual house sellers (and even whole neighborhoods of them) that are refusing to budge from their 2005 wtf pricing. But they are not selling, and adding to inventory at an increasing rate.
PS- Columbia County second homes may come from "new money" and that's why people are maybe a little more panicky than in Connecticut, where the homes probably come from older money.
Anyone ready to predict a bottom? Prices indeed seem to be unstuck, at least at the lower end, and dropping faster. I am so deeply underwater that it doesn't really matter anymore to me personally, but I still find myself wondering, how long and how low?
On a micro basis, I am seeing lots of stickiness - individual house sellers (and even whole neighborhoods of them) that are refusing to budge from their 2005 wtf pricing. But they are not selling
If they're not selling, there's no sales price to be sticky. It's the houses that sell that determine the market price - for everyone.
Wow, you so smart, Jas. If only we could get a genius of your caliber to help us fix the mess, now that would be something.
The mess is fixing itself. The high prices were the problem, and normal prices are the solution.
And it doesn't take a genius to figure that out. Just someone with common sense.
If the falling prices are making a mess for you, I would say you've been lacking in the above.
a murky crystal ball said: "Anyone ready to predict a bottom? Prices indeed seem to be unstuck, at least at the lower end, and dropping faster."
Absolutely. I think we're going to see nominal price lows this year on a nationwide basis, with some of the worst offenders (San Diego, et al) taking a little longer. Lower prices, low rates on fixed mortgages and easier lending practices are having their effect.
I think we're going to see nominal price lows this year on a nationwide basis, with some of the worst offenders (San Diego, et al) taking a little longer. Lower prices, low rates on fixed mortgages and easier lending practices are having their effect.
there's a lot about this situation that is without precedent in available data -- but, using past downturns as a guide, a low point in prices usually follows the high point in existing home inventories by 8-12 quarters.
we haven't seen the high point in existing home inventory yet. if price declines will continue until excess supply pressure has cleared, we are likely still years from a bottom. prices will not collapse like THIS for years, obviously -- the most rapid declines should be coming now with the highest markers of inventory -- but in order for inventory to fall back to more normal levels and supply pressure to reduce, clearing prices must be found.
given the sales reports (new and existing) in light of inventory levels, we're clearly not yet very near to clearing prices.
wadr to sebastian or any market optimist, it's ridiculous to bottom-call here. there will be a time to, but in the midst of rising inventory in spite of accelerating price plunges, this is obviously not it. at minimum, there will have to be visible declines in existing home inventory.
you'll have to illustrate this with data, sebastian. what i see looks more like this -- OVERWHELMING credit tightening on both the supply and demand side. it's classic deflationary behavior.
The 6.7% quarterly drop in the SPCS national index translates into a compound annualized decline of 24.2%. The SPCS HPI has a modest but statistically significant seasonal pattern, peaking in Q3 and troughing in Q1. By our reckoning, the SPCS index declined at a seasonally adjusted annual rate of about 22.3%.
It's the houses that sell that determine the market price - for everyone.
Yes and no. Yes, it establishes the last market price. But it is not really a 'market clearing price', to the extent there is inventory of buy and sell orders at widely divergent bid/asks in the queue.
My point was that, if houses are not selling, then a 3-month old 'last market price' is not really a good indicator of the current market value. It is a sticky indicator, and both buy/sell sides are being sticky in their decision not to change bid/asks so something can cross.
Boston and Denver make sense to me, and Charlotte seems to have been immune so far from both the price and the pair count declines that other regions have been experiencing. Las Vegas and Miami pair count numbers have fallen off a cliff. While the pair count decline in Washington to me is the most mind numbing figure. Washington does not have the boom/bust economy of many of the other leading pair count decline regions.
The pair count numbers are up by more than a third in Dallas, while inflation adjusted prices are down 8.2% and up nominally 1.5% over that time. Interesting to see the pair count numbers go up even as prices fall.
The reason prices are not sticky is that the sales are basically of distressed property. Forced sales don't have sticky prices. We've never had a supply of forced sales like we do now. Yes, "traditional" homesellers are still looking for sticky prices, but it doesn't matter, because there are going to be enough REO/short sales/death/forced relocation houses to supply the market for years to come. Normally there are more buyers than distressed properties, so the "normal" sellers set the market. The traditional marketmakers, people choosing to move, are now irrelevant to the market and chained to their houses.
On market stickiness: All of these highly leveraged, multi-property speculators are in a forced unwinding! I'm guessing that wasn't as much of a feature in past bubbles.
I think the internet is another reason prices aren't as sticky as in the past. Price discovery is vastly easier and more open for both buyers and sellers today.
Datahead just uncovered the secret of why Case's data is piss-poor! Case's data is influenced by properties that have much higher than normal turnover. So if it was bought by a speculator recently, it's probably being sold at a distressed price. This would explain the huge variance in different geographies as speculators were much more active in certain areas than others. In other words, you're only going to get 20%-30% discounts in areas that were heavily invested in by speculators. In other areas that are dominated by true homeowners that live in their property and weren't arbitragable by speculators, you don't see drastic declines.
Clearly those houses that were speculated on were driven higher in price and will accordingly fall lower. However, this does not apply to all real estate areas.
Like all markets, they go up, they go down. But a home is still just that to me. A roof over my head to provide safety, comfort and security. So far I have bought (LOW) stayed the course and am now selling (HIGH, although am taking a haircut but am still at 3x's my original cost) here in LA. I am taking my 3x's profit and now rolling it into a bigger and better house that has come down 20%. And since I will again stay a decade.... I am sure I will be up again.....
Theres a new index called IAS360 which analyzes data at the county level. This index is actually showing growth in certain pockets. It will be interesting to see whether the bailout has the intended affects and what affects it will have on housing indexes.
Once again, the rollercoaster analogy applies.
Gheeeeeeeeeee!
I knew it would be bad, but I didn't expect it to be this bad. I wonder if the OFHEO number will be bad too. I think the Case-Shiller number is a better reflection of reality.
--
Case-Shiller Home-Price Trend Since the Credit Crisis Began
The effects of the credit Crisis began showing in transactions that were initiated in July 2008. Case-Shiller monthly reports look at transaction over the 3-month period. Therefore, the first report that contained only the transactions since July 2007 was September 2007. The Annual Rate of price change since the September report for various metros and composites are as follows (6-Month Annual Rate).
____Metro \t6-M Annual Rate%
Phoenix - AZ\t-33.8%
Los Angeles\t-33.9%
San Diego\t-30.7%
San Francisco\t-33.5%
___Denver\t-15.3%
Washington\t-22.1%
___Miami\t-30.0%
Tampa - FL\t-24.8%
Atlanta - GA\t-15.5%
__Chicago\t-16.4%
___Boston\t-13.8%
___Detroit\t-25.6%
Minneapolis \t-25.0%
Charlotte\t-5.3%
Las Vegas\t-37.1%
New York\t-9.2%
Cleveland - \t-17.8%
Portland\t-11.8%
Dallas - TX\t-9.8%
Seattle - WA\t-13.5%
Composite-10\t-23.5%
Composite-20\t-22.6%
Jas
So how long until we've declined 75% from the peak, à la Japonaise? A decade?
Following up on my earlier back-of-the-classroom wisecrack, that YoY chart is something Col. John Stapp would no doubt appreciate:
http://en.wikipedia.org/wiki/Image:StappSled.jpg
--
REAL ((inflation-adjusted) Case-Shiller Home Price Change since December 1995
____Metro \tREAL Price Chance Since dec'05
Phoenix - AZ\t48.0%
Los Angeles\t99.8%
San Diego\t84.6%
San Francisco\t78.9%
___Denver\t24.5%
Washington\t63.1%
___Miami\t71.4%
Tampa - FL\t49.1%
Atlanta - GA\t8.9%
__Chicago\t26.4%
___Boston\t57.3%
Detroit - MI\t-10.2%
Minneapolis\t32.3%
Charlotte \t6.7%
Las Vegas\t34.9%
New York\t77.7%
Cleveland \t-12.2%
Portland \t44.7%
Dallas - TX\tNA
Seattle - WA\t71.8%
Composite-10\t72.0%
Composite-20\tNA
Jas
Gee...
What would happen to all those option arm mortgages if they marked them according to Case-Shiller? Got recast?
Anon - how does someone mark a mortgage to a housing-price index? You comment doesn't even make sense.
looks like another 20% down is needed for prices to hit their historical trend.
A decline of 6.7%, or almost 30% at an annual rate.
Yeow. There was a lot of doom and gloom around here in 2006, but did anyone predict that? I sure didn't.
And bucky is up....
Two cities, Dallas and Charlotte, showed increases in prices. That's the first time (unless I missed something) that any city in the 20-city index has shown a price increase since last August. Noise or signal?
By the way, this index is very persistent. You could have drawn a regression line through the past 5 months' y/y readings and come within 0.5% of the March result. (I needed to say something about the outlook, so that's what I did.) That makes sense, since the factors driving the price trend are also quite persistent. The implication, though, is that this sucker won't turn the corner anytime soon.
Rocky, how do you draw that trend?
At least technically, it looks to me like a possible reading of 105 in late 2009 if there's no overshoot, but my crystal ball is wonderfully unreliable.
Rookytrader writes:
looks like another 20% down is needed for prices to hit their historical trend.
Pendulums always swing out too far, thus, look for 40% more.
Declines are accelerating! Scary stuff, unless you are a potential buyer.
Prices are still too high. Look out below!
I wonder what would happen to banks if they had to reserve losses based on Case-Shiller instead of OFHEO numbers. I wonder what their LTV stats would look like. It would probably be a bloodbath.
News made the headline at drudge --
DRUDGE REPORT 2010®
Oops, make that 0.05%.
the stunning part may not even be reflected in the numbers yet. consider:
particularly in the northern states, there is a pronounced annual cyclicality to prices. they tend to rise above trend from february to may as the 'selling season' gets into gear; but then fall below trend from june to december or so, as buying pressure falls away and listings tend to be discounted to bring in more marginal buyers 'off-season'.
this relatively strong period is just ending now, and cyclical pressure will be applied to prices through year-end.
obviously another kind of cycle is dominating price movements at the moment. but those who think it cannot get worse (and i do expect some bottom-calling as a result of these figures) may be in for a surprise.
The pressure on FNM and FRE to re-categorize more losses, er, I mean assets to level 3 status will be simply "irresistible" and you know, if they can jump on the band wagon and have it all re-valued at historical values, perhaps they'll turn a fantastic profit. Financial alchemy at its finest. We are blessed to have some fantastic financial wizards at the helm of this nation and as stewards over all our pension plans. .... uh huh.
Ahhhhh, the sweet smell of affordable housing!!!
Anyone understand why REITs like TCO SPG GGP MPG are all up today ?
So, how many homeowners are there with negative equity rigth now?
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
My sense is that the huge glut combined with mass foreclosures is pushing down prices quite rapidly.
So the situation may be fundamentally different from past downturns or situations like the Japanese downturn where lack of buildable space (I'm assuming) and high savings helped drag out the downturn.
These price declines we're seeing now, and by implication Greenspan's legacy, are truly epic.
Anyone have a spreadsheet with the raw data?
JP, this site has all the data (both monthly for the city indices and quarterly for the National).
I'll have more on prices later today.
Best to all.
--
"So, how many homeowners are there with negative equity rigth now?"
Estimates are close to 10,000,000.
If the price decline trend of the past six months were to continue for another 6 months we would be approaching 20,000,000. The foreclosure parade will get bigger and bigger and biggerer.
The US Financial system is in trouble, as it should be in a system of the Crooks...
Everything was foreseen by pessimists like yours truly. I was forecasting 50%+ decline for CA. It is happening fast and furious in many parts of CA.
Jas
CR- Many thanks.
NPR has an article this morning about complicity between loan review companies and Wall Street resulting in a wave of bad loans included in mortgage securities. While this aspect of the bubble is well known to readers of CR, the money quote came from a reference to the New Century bankruptcy proceedings. Apparently, recipients of New Century loans, primarily Bear Sterns, agreed to a maximum rejection rate of 2.5%. IIRC, this is one of the first, very clear, public acknowledgements of cooking the MBS books apriori.
Auditor: Supervisors Covered Up Risky Loans : NPR
Best,
From the side the second graph looks like Dolly Parton.
Is anyone here knowledgeable about Columbia County, New York?
Canaan, Hillsdale and the area in between.
We're looking at country houses up there and I'm working on convincing my wife that an add'l 25% haircut is needed on virtually any asking price.
We agree that we'll bid low on anything, but she thinks my 25% figure is aggressive.
BTW . . . TONS of homes on the market up there. For sale signs dot the landscape like freckles on an irish lass.
Well, I didn't see this kind of fall coming for sure, and I regard myself as a pretty severe pessimist.
I really don't think Columbia County is experiencing any sort of sellers' panic. Upstate New York really IS "different." Hell, prices are RISING in CNY and WNY which are not all that far from Columbia. Maybe your wife is right.
"Everything was foreseen by pessimists like yours truly. "
Wow, you so smart, Jas. If only we could get a genius of your caliber to help us fix the mess, now that would be something.
Oh, that's right, you're too smart to do that.
DumbJas!
Gary,
I am very familiar with the area, having rented a home on Queechie Lake for several years. Do not buy anything there now. Almost half the homes are second homes of New Yorkers. The drive from NYC on the Taconic is 100+ miles each way.
As layoffs continue in NYC and as gas prices stay high, a lot of these homes will come on the market. You will have your pick. Wait, wait, wait.
Talk of a "bottom" or a "balance" in US home prices needs to reflect the worsening economic and employment situation. Id expect a healthier employment environment (in wages & salaries, not just job numbers) to produce higher bottoms compared to what we have in Q2 2008, all other variables being equal (such equalness being an impossibility, given the inter-connectedness of variables).
Also, talk of hitting historic trends & market bottoms circa 2008 need to reflect the magnitude of debt that borrowers are already carrying and "new", albeit possibly temporary, conservative attitudes by mortgage lenders. Based on the above, I doubt equilibriums or bottoms for any major city can now be pre-defined by historic trends.
Finally, a bottom aint no great accomplishment; are people hearing incipient upturn when they hear the word bottom? Realize that bottoms can be crater floors that last up to 7 years in the case of LA in one previous downturn.
Gary, I will add one other thing about Columbia County. There is virtually no economy left there except for tourists (NYC) and commuters (Albany). A lot of small businesses and stores have closed in the last few years. There's a little gentleman farming going on, but very few local jobs.
There's quite a contrast in the summer, when the local depressed economies get perked up for a month or so by the arrival of the Boston Symphony at Tanglewood. But the poor folks there are getting poorer by the day.
Anyone understand why REITs like TCO SPG GGP MPG are all up today ?
Bizarro World AP Headline:
Home sales post unexpected April increase
"Home sales post unexpected April increase"
Thanks to a downward revision for last month.
Yeow. There was a lot of doom and gloom around here in 2006, but did anyone predict that? I sure didn't.
Nope. The pessimists were forecasting huge drops, but over extended periods. In the face of data like this coming out of leader areas like San Diego I've been predicting that house prices will NOT be sticky since late last year. We're going to see a crash, with no historical precedent even in the Great Depression, with house prices reaching rent equivalence within a year. The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).
The drop will relent a bit for Q2 for the spring selling season and then return to even worse rates in Q3 or Q4. If people continue to believe in buying houses in America prices will level out in 2009 Q2 and volume will EXPLODE as renters clear out the huge REO overhang at prices below what they pay in rent. If the crash breaks American's faith in houses I have no prediction for the bottom.
Consumer confidence at 57.2, inflation expectations at 7% plus.
mal, rich's perspective rings truer to me, sibnce we just spent a weekend up on both sides of the border (MA & NY) and there is an incredible amount of inventory.
Also, many places have been on the market 6,9,12 months. No kidding. And many are now showing as "Price Reduced" or "New Price". Many with shorter DOM have been relisted (honest relistings it seems . . . i.e. changed broker)
But the ask prices are still way high in my book.
Beautiful country though.
Gary, I defer to Rich - he has a point about the glut of NYC people who live there and probably want to sell. I sometimes forget how far north they've invaded at this point.
My analogy to CNY and WNY probably does not apply for that reason.
mal, what are CNY and WNY . . . central and western?
rich is right about the population up there . . . an unbelievable percentage of places are NYers second homes and there is very little industry. The reason many of the little towns are so charming is that there never was any . . . it's always been rural farm and vacation country.
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
an excellent and perhaps overlooked point, ac. this is becoming a housing slump to exceed any that preceded it -- its only relevant antecedent in the last 100 years is now clearly the great depression.
were house prices sticky in the deflationary years?
The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).
an even better point, fe. gearing has turned housing into something closer to more liquid capital markets.
Rookytrader writes:
looks like another 20% down is needed for prices to hit their historical trend.
Oh boy, that solid as titantium "historical trend". When that gets hit, there will be a big collision, right?
...a collision with a cloud, maybe.
Scary stuff, even for potential buyers. How do you justify spending $200k, when it might be $150k in December?
OT - from Naked Capitalism
Regarding China's foreign currency reserves.
"We have reached what I believe is the end stage of this trap in which the monetary system is forced to adjust through appreciation and inflation. The problem is that in such a case there is a huge risk that hot money inflows destabilize the adjustment process, and this seems to be exactly what is happening. Instead of reducing foreign exchange inflows, the appreciation of the RMB is causing massive hot money inflows (which is not at all surprising, but it has been made much worse by Chinas bad luck of having to adjust in the middle of the sub-prime crisis) and so the adjustment must be much more dramatic and much more painful. No matter how quickly China tries to reduce monetary expansion by appreciating the currency, in other words, monetary expansion grows even faster"
Scary Bad Increase in Chinese Foreign Currency Reserves « naked capitalism
In the Greater Hartford region here in Connecticut, price decrease have been negligible. Houses may not be moving as quick, but prices are stubbornly high. Any house that is move in ready is a hot commodity.
I was thinking of Columbia County more in terms of being a place where Albany folks live - the Albany market, as far as I know, hasn't weakened all that much (the cash cow of state government employment being eternal). Years ago, Columbia County was unknown to NYC second home seekers, but I forgot how much that changed with the crazy prosperity down there. It's more of an NYC secondary market than an Albany secondary market now, perhaps.
Listen to Rich, he knows better than I do.
Looks like we may have to revisit the idea of house prices being sticky in certain environments.
On a macro basis, we are seeing rapid declines because it only takes a handful of sales to establish the index trend.
On a micro basis, I am seeing lots of stickiness - individual house sellers (and even whole neighborhoods of them) that are refusing to budge from their 2005 wtf pricing. But they are not selling, and adding to inventory at an increasing rate.
PS- Columbia County second homes may come from "new money" and that's why people are maybe a little more panicky than in Connecticut, where the homes probably come from older money.
Anyone ready to predict a bottom? Prices indeed seem to be unstuck, at least at the lower end, and dropping faster. I am so deeply underwater that it doesn't really matter anymore to me personally, but I still find myself wondering, how long and how low?
On a micro basis, I am seeing lots of stickiness - individual house sellers (and even whole neighborhoods of them) that are refusing to budge from their 2005 wtf pricing. But they are not selling
If they're not selling, there's no sales price to be sticky. It's the houses that sell that determine the market price - for everyone.
Wow, you so smart, Jas. If only we could get a genius of your caliber to help us fix the mess, now that would be something.
The mess is fixing itself. The high prices were the problem, and normal prices are the solution.
And it doesn't take a genius to figure that out. Just someone with common sense.
If the falling prices are making a mess for you, I would say you've been lacking in the above.
a murky crystal ball said: "Anyone ready to predict a bottom? Prices indeed seem to be unstuck, at least at the lower end, and dropping faster."
Absolutely. I think we're going to see nominal price lows this year on a nationwide basis, with some of the worst offenders (San Diego, et al) taking a little longer. Lower prices, low rates on fixed mortgages and easier lending practices are having their effect.
Sebastia
I can't hold out anymore. I need to feel the rush... I'll have what Sebastian's having.
I think we're going to see nominal price lows this year on a nationwide basis, with some of the worst offenders (San Diego, et al) taking a little longer. Lower prices, low rates on fixed mortgages and easier lending practices are having their effect.
there's a lot about this situation that is without precedent in available data -- but, using past downturns as a guide, a low point in prices usually follows the high point in existing home inventories by 8-12 quarters.
we haven't seen the high point in existing home inventory yet. if price declines will continue until excess supply pressure has cleared, we are likely still years from a bottom. prices will not collapse like THIS for years, obviously -- the most rapid declines should be coming now with the highest markers of inventory -- but in order for inventory to fall back to more normal levels and supply pressure to reduce, clearing prices must be found.
given the sales reports (new and existing) in light of inventory levels, we're clearly not yet very near to clearing prices.
wadr to sebastian or any market optimist, it's ridiculous to bottom-call here. there will be a time to, but in the midst of rising inventory in spite of accelerating price plunges, this is obviously not it. at minimum, there will have to be visible declines in existing home inventory.
easier lending practices
you'll have to illustrate this with data, sebastian. what i see looks more like this -- OVERWHELMING credit tightening on both the supply and demand side. it's classic deflationary behavior.
mal - I will say, prices on the MA side of the border seemed "stickier" . . . also higher, due to lower property taxes there.
and that's my last off topic post . . . for this thread. Thanks CR and T for your indulgence.
The 6.7% quarterly drop in the SPCS national index translates into a compound annualized decline of 24.2%. The SPCS HPI has a modest but statistically significant seasonal pattern, peaking in Q3 and troughing in Q1. By our reckoning, the SPCS index declined at a seasonally adjusted annual rate of about 22.3%.
It's the houses that sell that determine the market price - for everyone.
Yes and no. Yes, it establishes the last market price. But it is not really a 'market clearing price', to the extent there is inventory of buy and sell orders at widely divergent bid/asks in the queue.
My point was that, if houses are not selling, then a 3-month old 'last market price' is not really a good indicator of the current market value. It is a sticky indicator, and both buy/sell sides are being sticky in their decision not to change bid/asks so something can cross.
I'm fascinated by the change in the sale pair counts by metropolitan region between March 2005 and March 2008: http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,2,0,0,0,0,0.html
Boston and Denver make sense to me, and Charlotte seems to have been immune so far from both the price and the pair count declines that other regions have been experiencing. Las Vegas and Miami pair count numbers have fallen off a cliff. While the pair count decline in Washington to me is the most mind numbing figure. Washington does not have the boom/bust economy of many of the other leading pair count decline regions.
The pair count numbers are up by more than a third in Dallas, while inflation adjusted prices are down 8.2% and up nominally 1.5% over that time. Interesting to see the pair count numbers go up even as prices fall.
NV-Las Vegas\t -77.37%
FL-Miami\t -74.70%
DC-Washington\t -65.81%
FL-Tampa\t -64.87%
CA-Los Angeles\t -63.73%
AZ-Phoenix\t -61.79%
Composite-10\t -57.99%
MI-Detroit\t -56.49%
CA-San Francisco -53.87%
Composite-20 \t -52.27%
IL-Chicago\t -49.87%
NY-New York\t -48.74%
CA-San Diego\t -47.80%
WA-Seattle\t -44.44%
OR-Portland\t -44.04%
MN-Minneapolis\t -42.68%
OH-Cleveland\t -41.48%
GA-Atlanta\t -41.35%
MA-Boston\t -35.67%
CO-Denver\t -28.48%
NC-Charlotte\t -1.77%
TX-Dallas\t 35.78%
The reason prices are not sticky is that the sales are basically of distressed property. Forced sales don't have sticky prices. We've never had a supply of forced sales like we do now. Yes, "traditional" homesellers are still looking for sticky prices, but it doesn't matter, because there are going to be enough REO/short sales/death/forced relocation houses to supply the market for years to come. Normally there are more buyers than distressed properties, so the "normal" sellers set the market. The traditional marketmakers, people choosing to move, are now irrelevant to the market and chained to their houses.
On market stickiness: All of these highly leveraged, multi-property speculators are in a forced unwinding! I'm guessing that wasn't as much of a feature in past bubbles.
I think the internet is another reason prices aren't as sticky as in the past. Price discovery is vastly easier and more open for both buyers and sellers today.
Finally, the bust is over. Time for a real estate boom!!!!!! I'm going to sell my house for 95% above current value. YEA!
Datahead just uncovered the secret of why Case's data is piss-poor! Case's data is influenced by properties that have much higher than normal turnover. So if it was bought by a speculator recently, it's probably being sold at a distressed price. This would explain the huge variance in different geographies as speculators were much more active in certain areas than others. In other words, you're only going to get 20%-30% discounts in areas that were heavily invested in by speculators. In other areas that are dominated by true homeowners that live in their property and weren't arbitragable by speculators, you don't see drastic declines.
Clearly those houses that were speculated on were driven higher in price and will accordingly fall lower. However, this does not apply to all real estate areas.
Like all markets, they go up, they go down. But a home is still just that to me. A roof over my head to provide safety, comfort and security. So far I have bought (LOW) stayed the course and am now selling (HIGH, although am taking a haircut but am still at 3x's my original cost) here in LA. I am taking my 3x's profit and now rolling it into a bigger and better house that has come down 20%. And since I will again stay a decade.... I am sure I will be up again.....
Theres a new index called IAS360 which analyzes data at the county level. This index is actually showing growth in certain pockets. It will be interesting to see whether the bailout has the intended affects and what affects it will have on housing indexes.
Integrated Asset Services IAS360