Housing Doom

Talk about a "low barrier to entry": [Hat tip Old Mike!]

TALLAHASSEE - Florida’s top mortgage industry regulator resigned Tuesday amid allegations his agency let thousands of convicted criminals, including bank robbers and racketeers, work in the home loan business.

Gov. Charlie Crist and the state’s three Cabinet members, who together oversee the Office of Financial Regulation, also approved emergency rules to stop the licensing of ex-convicts as mortgage brokers.

The panel two weeks ago ordered their respective inspectors general to audit the office in response to a Miami Herald investigation.

The newspaper found more than 10,000 people with criminal records were allowed to work in Florida’s mortgage industry from 2000 through 2007 and that convicted felons had bilked at least $85 million from lenders and consumers.

Financial Regulation Commissioner Don Saxon’s resignation is effective Sept. 30.

“I recognize that things could have been done better,” Saxon told the panel. “It was always my hope that once that audit was completed it would demonstrate that our office is not acting as recklessly, if you will, as the Miami Herald might suggest.”

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According to the Case-Shiller Index, home price declines have been slowing for the past few months. There are those who think this could be a sign of home prices approaching a "bottom".  According to CNBC:

Among the strongest signs that the the hard-hit sector could be recovering, home prices in many regions of the country are now falling at a slower rate, after two years of declines, and in some areas prices have actually risen.

Seeking Alpha also gives this moderation as a positive sign:

Clearly, the May Case-Schiller report is nothing to pop the champagne over, but it shows the market’s capacity to change. The rate of month to month decline in home prices has decelerated in the last three months reported. It began with a 2.7% decline in February (the peak month-to-month drop in prices to date), slowing to declines of 2.1%, 1.3%, and 0.9% in March, April and May, respectively. Two regions showed month to month increases in March, growing to seven regions in May. With the rate of decline dropping lower by the month, if this trend continues, home prices will start to rise within the next few months. It would certainly be too optimistic to say that this is actually the beginning of a bottom, but it is sure starting to look like one.

I, for one, say that the moderation of the past few months is not indicative of a market bottom, but merely shows a typical seasonal pattern. Here’s why:

Prices, like home sales, are affected by the season.  Traditionally, month-to-month home price appreciation has been greater in the summer and smaller in the winter.  Even in bad years, summer demand is higher, putting more upward pressure on prices during the season.

To demonstrate this, I took the data for the "10 City Composite" of the Case-Shiller Index and calculated the month-to-month appreciation from 1987 to the present. [I used the "10 City" as opposed to the "20 City", as the "20 City" data only goes back to 2000.] Then I averaged the month-to-month appreciation for each month of the year.  Here’s what the graph looks like:

It stands to reason that if price increases are greater in the summer in an appreciating market, then price decreases will be smaller in the summer in a declining market.

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