Tuesday, February 23, 2010

Home price stability returns

The Case Shiller index of home prices in 20 major metropolitan areas (seasonally adjusted) has risen seven months in a row. Given the lags built into the way the index is calculated, this means that the bottom in U.S. home prices likely occurred last February or March, almost one year ago. In real terms, as shown in this chart, home prices haven't changed much at all since the end of 2008. Thus, stability has returned to a market that suffered from extraordinary volatile for many years. The popping of the housing bubble resulted in an almost catastrophic 35% decline in real home prices, which in turn caused trillions of dollars of mortgage- and asset-backed securities to evaporate, threatening the viability of the entire world's banking system.

Fortunately, the dust is continuing to settle, markets are clearing, and life goes on. The stabilization of home prices has allowed the prices of securities such as shown in the chart below to rise for the better part of the past year. That's because the panic which set in over a year ago caused such selling pressure that the prices of asset-backed securities fell to levels that implied a continuing decline in home prices that was way too pessimistic.


brodero said...

The banks were stressed for a 22% drop in home prices in 2009....we got a 3% drop....

Stefano Bassi said...

Okkey the optimism...but...;-)

Shiller Is Worried About Gov’t Involvement In Housing
Robert Shiller (Yale prof., Case/Shiller Indices) warned that the gain on the Case/Shiller index was purely due to the seasonal adjustment in December and that housing prices fell on an unadjusted basis.

and from calculated risk
The impact of the massive government effort to support house prices is obvious on the Composite graph. The question is what happens to prices as these programs end over the next few months?

new home sales HIT RECORD low...

MBA: Mortgage Purchase Applications at Lowest Level Since May 1997

ok the snow, ok jan-feb storically depressed months

you are very skilled but
please, before the reality
and after the optimism :-)

Scott Grannis said...

Everyone can see the data you reference. Calculated Risk has been pessimistic for a long time. Everyone is worried about housing doing a double-dip; a second wave of defaults, etc. When I see so much in the way of bad news, my contrarian instincts tell me that maybe there is another side to the story. That's what i'm after. New home sales are at a record low because new home construction is also at a record low. The overhang of housing looks big, but it is declining, and family formations continue to rise. Prices have been relatively stable for a year, while interest rates are at historic lows and real incomes are rising. There is room for optimism. Where else are you going to find it?

Thoughtful said...

A log-linear chart is a great way to view the data. Take a look at this document for a chart on each of the 20 cities in the index (http://www.seasonconsultingllc.com/Season_Consulting/Downloads_files/20%20City%20Composite_2010-02-24.pdf)

The major trends for all but a few markets (Vegas, Portland, Charlotte) are still in place, and while the recent price lines seem to be rolling over a bit, we're still within normal levels of month-to-month price fluctuations. Keep in mind the activity in the residential markets driven by the home-buyer credit, the expected expiration of the credit, and then the extension of the credit...shouldn't we expect to see some bumpy data as a result?

brodero said...

Calculated Risk won't state or hasn't stated it on its blog but they believe this economy will generate 1.5 million
new jobs this year.....