The Case Shiller home price index in November rose for the sixth month in a row. Even after adjusting for inflation, home prices are up. And given the nature of the index, which operates with a significant lag, the message here is that home prices in 20 major markets hit bottom sometime around last March or April, after declining 36% in real terms from the high of early 2006. The housing price bubble popped, but it is no longer deflating. Prices have come back into line with incomes (actually, housing affordability is near an all-time recorded high, according to the National Association of Realtors) and interest rates have fallen to historically low levels. This is how markets adjust to changing circumstances. The $500,000 home that turned into a deadweight albatross for the guy who bought it in 2006 is now a $320,000 dream house for the guy who buys it today.
Scott,
ReplyDeleteDo you think prices are bottoming because the majority of the homes being sold right now are very low end homes to investors and first time homebuyers?
It seems the concentration of buying is on the very very low end ($20-$200K)....but at the higher end, it appears that prices are still falling very fast.
CalculatedRisk has done an excellent job of clarifying this point.
I think we are at bottom--what remains to be seen is if private-sector buyers will ever trust MBS again.
ReplyDeleteThey bought AAA-rated MBS and lost their pants in the last bust.
MBS buyers will not trust ratings agencies again, especially rating sgencies hired by the issuers.
Not sure what the answer to this is. Most residential mortgages now being bought by feds.
The old, old model was S&Ls orginating and holding loans. Resurrection?
Still, housing is cheap again.
Scott,
ReplyDeleteLove your work and just wanted to add a different perspective on the Case-Shiller index. Check out the charts at
http://www.SeasonConsultingLLC.com/Season_Consulting/downloads.html
The latest set of charts covers the 20 cities individually and the 20-city composite. It's interesting because it presents the data on a log/linear scale with trend lines. The big "ah-ha" is that this current down trend has not violated the trend lines. I think many would find this surprising given all of the negative press on residential housing.
Scott,
ReplyDeleteThanks for the comment on currency risk. Have you seen Bill Gross's take on inflation based partly on likely deficits. He thinks that Germany, Australia and China will have the lowest deficits -- with Oz and China having the lowest aggregate debt. My take is that perhaps I should take my money to Oz and buy income producing property -- or perhaps Australian stocks. I suspect Oz is currently experiencing a housing bubble. My wife is from Oz and we already own a house there which is up substantially over the past four years.