Tuesday, September 25, 2012

More evidence of a housing recovery



The Radar Logic series of housing prices (nsa) is up 3.7% in the year ending July, and it is essentially unchanged for the past three years. The Case Shiller measure of housing prices (sa) is up 1.1% over the past year, and hasn't changed much either over the past several years. That's three years of almost flat prices, with the important change on the margin being to strengthen, albeit modestly. For over six years the housing market has been adjusting, painfully, to new realities, and increasingly it appears that the adjustment process is complete. Prices have found a new equilibrium.


Using the Case Shiller data for 10 large metropolitan areas, and comparing that to the BLS' calculation of owner's equivalent rent, we get the same story: housing prices and rents have come back into alignment; the adjustment process is largely complete.

However, the current level of prices may not be a true equilibrium, because mortgage rates, which determine the "cost" of a house for many people, are extraordinarily low. If getting a mortgage were to be made somewhat easier (it's still difficult, as my daughter can attest), demand for housing could increase significantly, boosting prices even as banks increased their sales of foreclosed properties. Even now there are bidding wars in some markets, and some houses in my daughter's neighborhood are selling for full price just one or two days after listing.

7 comments:

brodero said...

The Housing Starts to Total Nonfarm payroll employment ratio is now
.56%...the average for the 1990's was 1.17%... the low for the 1990's was January 1991 at .73%...The 30 year mortgage rate in
January 1991 was 9.64%...today's 30 year mortgage is 3.6%

The range for this ratio in the 1990's was .73% to 1.4%

Gene Prescott said...

In my little 'anecdotal' neighborhood there are 5 new spec houses under construction. From several years of -0-, 5 seems like a lot.

Dr William J McKibbin said...

For better or worse, QE3 will churn the housing markets -- the low prices and interest rates we see today will dry up quickly once QE3 gets some wind in its sails -- those who want to acquire a home should try to get the transaction completed relatively soon -- I am expecting real estate prices to rise sharply starting next summer or even spring...

Benjamin said...

Leverage up and buy a house!

RichmondG30 said...

"If getting a mortgage were to be made somewhat easier (it's still difficult, as my daughter can attest), demand for housing could increase significantly, boosting prices"

Look at the other side of the coin though. Mortgage rates have nowhere to go but up, and when that happens it will put downward pressure on housing prices.

Scott Grannis said...

I would argue you have the causality reversed. Mortgage rates will go up because the housing market gets stronger and prices rise (and that will happen as demand for housing increases). A better economy and a better housing makret will push rates higher; higher rates won't weaken the economy.

Mike Eddy said...

Scott, I am putting together a presentation and I love your fund flow charts. 1 "Taxable Bond Fund Flows" and 2 "Domestic Equity Fund Flows". In order for me to use them I need your permission. Could you please give me permission to use them.
If so my compliance department needs your ok.My email is charlie.barry@berkeleycp.com

Thanks