Tuesday, January 31, 2012

Home prices are still weak, but very affordable



As these charts show, both nominal and real housing prices have declined to new post-recession lows, though the decline since the end of the recession in mid-2009 has been modest: between -3% and -7%. These price indices may well slip a bit more, but I don't think that is inconsistent with my view that we have seen the worst of the housing and residential construction bust, and that a slow recovery is now underway. Note that the prices reflected in these charts are an average of prices during the months of September, October and November, so they are rather old news. Plus, I think it's important to add that homebuilders' stock prices have jumped some 50% since the end of September, the National Assoc. of Home Builders' Market Index rose from 14 last September to a 4-year high of 25 in January, and housing starts rose 25% last year. Housing price indices such as these are most likely a lagging indicator of the underlying dynamics in the housing market; real-time data suggests we are seeing improvement on the margin. Furthermore, mortgage rates are now at rock-bottom levels (the nationwide average of 30-yr fixed conforming mortgage rates is only 4.07%), making housing more affordable to the average buyer than ever before.

12 comments:

Public Library said...

The Fed just floored rates until 2014. Signal to homebuyer X = no need to move anytime soon, rates aren't going anywhere for a looooong time.

Prices will probably continue their forward march down. Additionally, the national debate is more tilted towards removing real estate incentives like intersest deductions. Coupled with a shift in attitudes about ownership and investment and the outlook for housing is flat at best barring more Big.Gov redirecting capital.

Dr William J McKibbin said...

Now is the time to buy high quality rent-earning real estate -- the expanding Main Street depression is creating buy opportunities almost everywhere -- bid and bargain arrogantly with cash.

seekingtraceevidence said...

Toll Brothers indicated 6mos ago that house prices indices did not differentiat between the two key markets, i.e. new homes vs. foreclosure sales. While new home prices were rising 3%+ per year the falling prices of foreclosures some of which had been stripped of plumbing and etc were driving the composite.

Unknown said...

Scott why do you continue to ignore all the supply indicators in housing?

After epic efforts from gov't to create a false stabilization through demand stimulus and supply management, well are well into a 2nd leg down in housing prices.

Delinquency rates are in the 8-9% range where historically the should be 3-5%.

Foreclosure rates remain at historic levels of ~4% when historical norms are ~0.5%. This has not even peaked yet. When will it come down to normal levels (I sure dont know).

Seriously delinquent loans far outnumber foreclosure starts. There is a huge shadow inventory that is continuing to grow. Lender stopped processing foreclosures when they reached the capacity for the market to absorb them.

Eventually the shadow inventory must be pushed through the system. Lenders are not going to give away a trillion dollars worth of homes.

Lenders, the Federal Reserve and the government responsible for the losses at the GSEs and FHA were all hoping the engineered bottom they created in 2009 would provide the market momentum that would carry forward. This was never a realistic possibility. In many markets prices were still inflated in 2009, and with the overhang of distressed inventory on the MLS, in the foreclosure pipeline and waiting in shadow inventory, and the depleted buyer pool needed to absorb this inventory, there was little chance of the market props forming a durable bottom.

The double-dip represents the second phase of the housing bubble deflation. The first phase was the removal of the toxic financing and government props. The second phase is the liquidation of supply left over from the debacle.

Benjamin said...

This wil be looked back upon as one of the great real estate buying opportunities of all time.

Sheesh, you can make lower mortgage payments than ever to buy an average house. You can buy at half price, commercial or residential. You are obviously not buying at the top, and probably near the bottom. You can leverage even now at four to one.

Unknown said...

I agree with you in certain areas. Phoenix, Arizona, Florida and think are fairly valued and may have overshot.

But overall and in particular areas (coastal California) not now, not yet.

This will be a long slow grind down and we will not see appreciating prices for many years. There are better spots for your money for the next 3 to 4 years.

Benj - you being such a believer in the Japanification of the U.S. Please tell me how long it took housing prices to stabilize in Japan?

Dr William J McKibbin said...
This comment has been removed by the author.
Benjamin said...

unknown-

You caught me in a rare burst of optimism!

I am assuming the Fed comes to its senses, and goes to Market Monetarism, which now has a Wikipedia entry, btw.

House prices, and all real estate and equities, have been falling in Japan for 20 years and counting. It is an epic failure of tight money. Tight money simply does not work--Japan proves that.

BTW, John Taylor, Milton Friedman, Allan Meltzer and Ben Bernanke all advised japan to go to QE and hard and heavy. If you get anymore right-wing than that crew, you are wearing jodhpurs and jackboots.

But now we hear squealing from the right about gold. It is pathetic.

John said...

There is so much going on and I think 2012 is going to be a big year. i listen to the guy that called the stockmarket crash in 08, and has many other scary accurate forecasts coming true at http://www.forecastfortomorrow.com he has some interesting things to say about 2012. wow.

brodero said...

64% of the underwater homes are located in 8 states that make up 35%
of the populace....

Dr William J McKibbin said...

@John, everyone should remember that the marketplace, hospitals, and courtrooms are all very dangerous places where we can lose assets, life, and freedoms -- much of the propaganda out there is intended to calm people in the face of economic depression along Main Street USA -- evidence of the still expanding depression include declines in real working wages, declines in real home values, and the decline in the employment to population ratio -- all of these indicators are horrifically negative at this point, and have been for years -- yes, the "Federal layer" of US society is still prospering (e.g., Federal workers, "too big to fail" banks, and the defense establishment) -- however, the economic crisis along Main Street USA has yet to be acknowledged -- I regret that both monetary and fiscal policy-makers have focused essentially all of their efforts on saving Federalism from itself -- in the meantime, Main Street USA lies in ruins by all of the measures mentioned above -- at some point, the people will "take back" America (assuming the US is not overcome by world war) -- we live in dark times, and nothing being pursued in Washington by fiscal and monetary policy-makers has any chance of reversing what is happening in the near-term (i.e., the next 3-5 years) -- now is the time everyone (except accredited investors) to take cover -- yes, accredited investors are in a "buy window" to acquire equities on the cheap (perhaps the best window of opportunity since the US Civil War -- however, everyone else in the US is watching their standard of living decline right before their eyes -- our children are being killed and maimed on the other side of the planet, and our incomes, homes, and career opportunities are in decline -- like I said, take cover while you still can -- economic horror is inbound...

Benjamin said...

BTW, Federal Rserve reported business loans most since 2005