Tuesday, May 29, 2012

Housing price update


According to the seasonally adjusted Case Shiller index, housing prices actually rose a bit (about 0.2%) in the first quarter of this year. According to the non-seasonally adjusted Radar Logic data, prices rose about 3%.


As the chart above suggests, the rate of decline in housing prices has moderated quite a bit in recent years.


Adjusted for inflation, the Case Shiller data for 10 large metropolitan areas shows that prices declined about 3% in the first quarter. Real home prices by this measure are still about 10% higher today than they were in 1990. But since the cost of a mortgage in 1990 was about two and a half times higher than it is today, and real disposable incomes have increased over 70% since 1990, housing prices are best thought of as being incredibly cheap.


This chart compares the rise in home prices as measured by Case Shiller, and the BLS' estimate of the rental equivalent of home prices has been. Housing prices and rents have come back into line.

All the evidence to date suggests that there has been a major pricing adjustment in the U.S. housing market, and that this has been sufficient to clear the market. Anecdotal reports from a number of areas in the country now suggest that activity and prices are beginning to pick up. While we may see a bit more softness in these indices before they turn up (bear in mind that they are produced with a lag of at least three months), prospective homebuyers would be wise to view the glass as half full rather than half empty (i.e., prices are more likely to be higher a few years hence than lower).

11 comments:

bob wright said...
This comment has been removed by the author.
Unknown said...

You are dead wrong on housing prices.

It is an artificially manipulated market right now. Bank are not foreclosing, and when they do they are sitting on the inventory. How about my anecdotal stories of people not making a mortgage payment in 4 years and still sitting in their house? The banks can't manage the write down in the assets...they would be insolvent.

Interest rates are artificially low, supply is being purposefully held off the market. Only the great

The banking cartel will be successful in the short term...choking supply, creating an artificial floor on prices, buyers on the sidelines will rush in as the media crows about a bottom. Prices may even rise in the summer months. The Greater Fools are going to eat it, an dprices on real terms are going to be down another 10-20% within 3 years.

Unknown said...

This is what is going on out there.

If banking regulators weren’t permitting amend-extend-pretend, the former owner of today’s featured property would have been forced out in early 2009. Instead, she was allowed to stay and not pay for a very long time.

21582 RIO VERDE Lake Forest, CA 92630

Prior Transfer
Recording Date: 04/03/2012
Sales Price: $480,000

Foreclosure Record
Recording Date: 03/06/2012
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 07/06/2010
Document Type: Notice of Sale

Foreclosure Record
Recording Date: 12/30/2009
Document Type: Notice of Default

Foreclosure Record
Recording Date: 04/16/2009
Document Type: Notice of Rescission

Foreclosure Record
Recording Date: 02/27/2009
Document Type: Notice of Default

Foreclosure Record
Recording Date: 02/27/2009
Document Type: Notice of Rescission

Foreclosure Record
Recording Date: 12/02/2008
Document Type: Notice of Default



Is this clearing supply?

Dr William J McKibbin said...

Buy!

Squire said...

Housing prices on average appear to be bottoming but it isn’t proven yet. All the people I know are paying down debt and will not obtain a mortgage until all their other debt is zero. And then still, they will want to build their savings first not believing that they will get a financial return on stagnant house prices. People outside of the better cities will be looking out 20 to 30 years when deciding to buy a house. I don’t see housing adding much to the economy for a long time.

Unknown said...

Yes interesting times in housing.... the housing market appears to be in better shape than it actually is because of the massive amount of support from mark-to-market accounting suspensions, the Fed intervening and pushing mortgage rates to record low levels, and a banking system that is leaking out shadow inventory. In other words, the housing “market” is one of the most controlled systems in the economy and prices are still near the bottom after many years of intervention.
Of the 16,000,000 underwater homeowners 9 out of 10 continue to pay their mortgage on time. This is likely another reason why principal reductions are not part of the bailout equation years later. Banks are willing to walk away quicker than a cheetah on a bad bet but it is apparent that even Americans deep underwater on their homes are willing to pay for an asset that is clearly overvalued. The new name of the game is refinance at the artificially low rate and ignore the data showing a less affluent younger generation that is more focused on quality jobs than purchasing a property.
Surprising you free marketers arn't more vocal about what is clearly an artificial market.

Dr William J McKibbin said...

Scott is calling the housing bottom correctly in my opinion -- here's more support from the WSJ:

http://online.wsj.com/article/SB10001424052702303807404577434053467754754.html

Trying to time the absolute "bottom" of the real estate market is folly -- real estate prices are low enough -- anyone without a home today (young buyers) would do well to bid low and obtain 3.8% fixed mortage and begin to enjoy home ownership -- anyone seeking to build a real estate portfolio will find deals almost everywhere -- now is the time to buy cheap real estate -- prices may decline some more, but let's face it, there's not much downside left -- bid low and demand favorable terms from sellers now...

Unknown said...

No more room on the down side?
I guess it really depends where you are. Dr. McK come to Southern California where the median housing price is still almost 6x median household income. Where in certain counties 50-60% of homeowners with mortgages have negative equity. Where the unemployment rate is well into double digits.

At a quick glance around California and there 192,000 single family homes are available for sale. 80,000 of these are foreclosures. In other words, roughly 41 percent of California MLS listed homes are foreclosures. Looking at another source for data, we find 217,000 homes in California in some stage of foreclosure. In other words, 137,000 distressed homes are simply lingering in the pipeline. This is larger than the non-distressed MLS inventory currently listed and we are supposedly in a recovery?

Maybe you have a case for Texas or other non-bubblicious states...but not in California, Florida, Arizona, Nevada, Georgia, Michigan, Illinois...

reginag said...

I still dont give up, and not loosing chance of getting my own house.

escrowit.com

Hans said...

In the latest employment report, the construction industry deconstructed about 28,ooo jobs...

That being said, Mr Grannis, makes an excellent point about housing costs, when financing is included.

Nevertheless, there are no new household formations and thus the price pressure shall remain to the downside, low interest rates or not.

It is good to know, that our blessed Central Bank continues it vain efforts with FedZero, as it's hallmark for economic recovery...

http://sportsfunia.com said...

nice increase and descreace diagram