Tuesday, June 26, 2012

Case Shiller update



The April data (which represents an average of Feb, Mar, and April) are in, and the news is encouraging. The seasonally adjusted CaseShiller home price index was up 0.7% for the month, while over the past six months, prices are up at an annualized rate of 0.5%. The unadjusted Radar Logic series shows that over the past year, prices have fallen by only 0.9%. Home prices appear to be bottoming.


On an inflation-adjusted basis, prices have fallen by 40% from their early 2006 high. After six years of huge declines in new construction and a huge decline in real prices, the U.S. housing market is finding a new equilibrium. In fact, anecdotal evidence suggests that prices are now rising in many markets. Even though there is a large overhang of foreclosed real estate still on the books of banks, buyers are ever-more willing to snap up homes as they come on the market. Should the psychology of the market improve to the point where the public comes to believe that overall prices are rising, demand could easily rise to match any increase in the sales of foreclosed properties. This is how markets clear: it takes time to work off excess inventories, and it takes a change in price to bring buyers and sellers together, but we seem to have achieved both those conditions.

7 comments:

Dr William J McKibbin said...

The loss of wealth by poor people (those earning less than $250,000 annually) appears permanent -- an extended period of Romney-inspired creative destruction will drive living standards down even farther -- the good news is the the economic restructuring that is now underway will eventually result in a much leaner society, production base, and government that will serve long-term investors with a 30-year plus horizon very well -- the future looks brighter than ever for accredited investors -- everyone else should take cover...

Squire said...

Finding equilibrium for housing has come at a cost to savers. It has been a transfer of income from savers to home buyers, and, to home owners who refinanced. The cost to non home owner savers has been enormous as they gave up their income to concentrate a benefit to home owners, that benefit being cash in the pockets of the chosen. It wasn’t enough that mortgage holders have been subsidized by renters via tax benefits to home owners. Should the artificially low interest rates not succeed in boosting housing much, damaging renters and savers will have been in vain. I do hope this experiment in social engineering comes out well for the greater good for all the damage it has done to some.

marcusbalbus said...

why do you cheer rising prices?

Benjamin said...

Squire is correct in that the US tax code all but forces people to buy homes.

There is a huge over allocation of resources to housing, due to the mortgage interest tax deduction.

You will never hear the GOP mention this huge market intrusion and a slug of federal socialism.

That said, you can leverage to buy housing, gain shelter, hold until prices are right, and then sell. Capital gains are generally protected.

Wow.

Benjamin said...

BTW, commercial real estate seems to have roughly stabilized at about 2003 prices, according to this source:

http://web.mit.edu/cre/research/credl/rca.html

Somehow, I though hyperinflation, or even strong inflation, would look different from this.

Johnny Bee Dawg said...

Seems hard to use Radar Logic data to justify a bottom in housing just because prices FELL at a 0.9% rate. I mean...they fell. And Radar Logic's latest monthly housing report summary says, "Oversupply will prevent sustained recovery in home prices. A grave risk of further price declines persists." Their comments from viewing their data dont seem to match up with those of this blog.
I do love this blog. Just wondering how to reconcile these 2 views.

Frozen in the North said...

CBP that sounds about right, but what happens when America's bank start processing delinquency again? Obviously banks stop repo business while the figured out what went wrong and how they should take hold of the delinquent payers' homes.

The statistics on mortgage delinquency have not improved. What happens when these houses hit the market?

Personally, I don't pretend to know, but a combination of low credit scores, bank re-starting the repossession process will certainly keep home appreciation at bay. Finally, median income in America is falling; it is hard to see how that will be conducive to rising home prices!

Ok I have a bias, still...