Yesterday there was a slight month-to-month increase in the Case-Shiller home price index, and there was much rejoicing in Realtor-ville:
Realtors are hoping an uptick in home prices reported on Tuesday is the beginning of a turnaround, but industry experts say it’s too soon to tell if the improvement is anything other than a seasonal blip.
The Standard & Poor’s/Case-Shiller home price index reported that prices in April rose in 13 of the 20 cities tracked. Washington, D.C., saw the biggest price increases, followed by San Francisco, Atlanta and Seattle.
The index, which covers metro areas that include about 50 percent of U.S. households, rose 0.7 percent, the first increase since July 2010.
This “increase” is in line with seasonal expectations. The more significant year-over-year is down.
Prices of previously owned single-family homes rose 0.7 percent in April from March but were down 4 percent from April 2010, according to the Standard & Poor’s/Case-Shiller index of 20 metropolitan areas released Tuesday. In March, home prices dipped below their recession-era low in April 2009, confirming a much-expected double-dip in home prices.
In spite of the fact that this bright spot doesn’t put out any more light than a birthday candle, the housing bulls were out in force:
Christopher Thornberg, principal of Beacon Economics, doesn’t expect prices to fall further. The April 2009 bottom appears to be more or less where prices will probably stay until the excess supply of homes on the market is bought and the jobs engine creates new demand, he said.
“We have too much supply and not enough demand; the market found a level that fixes that, and until we start to eat up some of that supply and demand starts to grow, you are not going to see any big change here, simple as that,” Thornberg said. “It is going to take a couple years.”
Patrick Newport, U.S. economist for IHS Global Insight, said that home prices are undervalued.
“They are dropping further because there are a lot of bad loans still in the pipeline, and once they hit bottom, prices are going to start going up again because they are undershooting on the way down,” Newport said.
So Newport says prices are undervalued, but will continue to drop? That “undershooting” trend of his could last for awhile:
Last week, for instance, the foreclosure data firm RealtyTrac Inc. reported that foreclosure filings in the U.S. declined 2% in May from April and plummeted 33% from May 2010. Many foreclosures appear to be on hold until regulators and major banks conclude settlement discussions stemming from faulty foreclosure practices that will probably change the way homes are repossessed in the U.S.
When those negotiations are settled and banks revamp their processes and begin foreclosing again, some analysts are predicting further pressure on prices starting later this year.
“That is a very big wild card … how quickly these foreclosures are released on the housing market, and that is a difficult thing to predict,” Chen said. “We do expect foreclosures are going to rise over the next several quarters with the fastest pace occurring toward the end of this year.”
Serious analysts watch this price “increase” with a collective yawn. Like the swallows returning to Capistrano, one of the signs of spring is Realtors pointing to the month-to-month increases and declaring the market is improving. In the fall when the month-to-month numbers start cooling, they will then declare the trend “seasonal”.
Now it definitely feels like summer.
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“Christopher Thornberg, principal of Beacon Economics, doesn’t expect prices to fall further. The April 2009 bottom appears to be more or less where prices will probably stay until the excess supply of homes on the market is bought and the jobs engine creates new demand, he said.”
Just so you know, Thornberg is not one of your typical, run of the mill “bulls”. If you go back and look at his posts from 3 – 4 – 5 years ago, he was anything but. Back then, Thornburg was a bold, even defiant bear predicting bigtime declines at a time when many bears were predicting 10-20% declines.
The fact that Thornburg is now a “bull” give me pause. Frankly he deserves better than to be lumped in with the garden variety bulls – many of which thought subprime would be “contained”
Also, I hate to do this, but I have to ask, again about DC.
3 months ago when Case Shiller results came out, I noted how DC had gone up, again. Prices were then @181.59 and rising. And when I said rising, I didnt mean on a monthly, seasonal, basis. I meant rising, 2.3% on a year over year basis.
New results have come out and DC had gone up yet again. DC prices are now at 186.76 and rising, now at 4% on a year over year basis.
As I noted, before im getting nervous I missed the bottom (March 2009 @ 165). At the time you assured me, DC is just “late to the party” and “hasnt seen bottom yet”. You said basically the same thing when I re-emerged 4 months ago. Problem is, for 26 straight months now, people have been assuring me “its just a blip”, we’re “nowhere near the bottom”, its “late to the party” etc. etc. etc.
I ask you, again, how much longer would you be of the opinion “we havent bottomed yet” before you eventually conclude “I guess I was wrong”? 2011? 2012? Later?
As it stands now, DC prices are 12.5% above the March 2009 levels when I hesitated and decided not to buy. How much higher would they need to go before you conclude “I guess I was wrong” and dive back in? 15% off bottom? 20? 50%???
Sorry, I hate to be somewhat confrontational like this, but these gains, while the rest of the country continues to decline, are making me sick to my stomach. I am really starting to panic, and think I missed the bottom in a big way, and I am looking for some advice, reassurance, etc. that my continuing to wait is not a bad idea.
So again, at what levels (time and or price) would you (twist or anyone else for that matter) conclude DC is past bottom? Has anyone given this sort of question/predicament any thought?
ceel….i don’t believe most people here will view your questions as confrontational. it’s understandable that you fear you will miss out on the bottom. my opinion (and it’s not worth much) is that prices aren’t going anywhere anytime soon. there is still a lot of inventory to be released by the banks. i personally know a few home borrowers that have now lived in their homes for more than a year, without making a single payment. they haven’t been foreclosed yet. eventually they will. i used to follow this much more closely, but i became somewhat consumed by it. i actually had not visisted doom for a long time until today (i used to check in a few times per day).
nobody can tell you for sure what will happen, but there is just not any economic data to support continued increases in home values. i suspect DC (and some other markets) is a bit abnormal due to the cost of homes there. isn’t DC one of the markets that has an exception to the conforming loan limts? if so, that is dropping, which will make it even more difficult to buy a home there. i would start by looking into that (i could very well be wrong, but i thought they were lowering the conforming loan limits in the more expensive counties). also, the mortgage insurance companies are a wreck. some of them may not even make it. mortgage insurance is getting more expensive and more difficult to obtain, making monthly payments higher, which drives down prices. interst rates CAN’T get lower than they are. they have nowhere to go but up (which may be next quarter….or in 2 years….but they have to go up at some point). interest rates go up, monthly payment goes up….price has to drop.
in higher end markets, fluctuations may not always be accurate because a few very expensive sales can throw off the data. my brother bought a home in miami 2 years ago. it was a $160K home and we talked at length about his decision. i tried to pursuade him to wait, but he didn’t. he isn’t concerned though, because he got the $8K credit bring the cost to $152K. it is now worth about $135K. however, it is his “home” that he is raising his little boy in. he isn’t going anywhere anytime soon and he knew that when he bought it. his total monthly payment is very close to what renting a similar home would have been and he his paying (a tiny bit of) principle down every month. so sure…it dropped another 15% after south FL had already plummeted in values, but he doesn’t care because he (and i) believes that as long as he is staying there and paying principle, it will even out.
so i don’t think buying before the bottom is necessarily an awful idea. you just have to understand that you will be stuck there for a very long time if it does drop again…or be willing to accept the loss. all of this being said, i wouldn’t buy in DC, or anywhere for that matter.
ALL blogs have been wrong for 2 years… I bought the bottom with several good paying rentals. I also bought in 1996 when the same fools where calling for more pain to come. Buy when there’s ‘blood in the streets’ …. problem is most folks are just to affraid to make the call themselves and suffer waiting for a fool to tell them the water is safe.
Ceel, I think all we old time readers appreciate your situation, seeking certainity in a world that is anything but. Let’s begin with one basic reality: there are no facts about the future. Given that ultimately useless tidbit, we all forecast and sniff the wind, but basically our opinions regarding matters like the direction of housing prices generally, let alone in a specific market like the DC area, reflect our personal beliefs as much as strict reasoning from sound data. When I first discoverd “Doom” vitually all the basic metrics showed housing prices were out of wack (income growth, rental growth, household debt), yet many folks who were not stupid genuinely believed compound growth rates would march on, perhaps abated from those 10% per year returns, but move upward none-the-less. Those periods of data clarity contradicting important conventional wisdom are thankfully rare. Debbie and John believed the data, not the wisdom, and many readers were helped thereby.
The information is now much more murky, I think most Doomers would agree. Take two charts from The Economist (6/18) at page 78, and you see that while progress has been made on certain fundamental metrics, like the amount of household debt as a percentage of disposable income, we still have a long way back to “normal”. Some of us believe (that word again) that the “normal” we once knew, in terms of housing appreciation, employment levels, income growth, lifestyle, is unlikily to recur, if only due to demographic and behaviorial changes. Regardless, most of us have been uniform in suggesting that trying to time the bottom of the housing market, precisely, if you really want to buy real estate, is almost as bad as trying to catch a falling knife, except that waiting normally provides increased optionality. I believe buying real estate to live in is a lifestyle choice that, for all but the brief bubble years, was inherently more expensive than renting, yet I have chosen to do so. Over my long life recent losses have been somewhat offset by prior “gains”, but I have surely paid a premium to own my homes, rather than renting. I could afford it, without asking my neighbors to pick up the slack, so it was ok, if not financially optimal.. Very little of my life was lived in a financially optimal fashion. I am now actually considering whether to invest in certain real property, as an alternative to the dismal returns available elsewhere, but that is an entirely different decision-making process in my opinion, and as an investment I would consider it high risk, even at this point. I believe we are certainly alot closer to replacement cost for housing in certain areas (DC???)than we were 2, 3 or 4 years ago, which should mean a logical floor, at least in economic theory, is in sight, if not yet achieved..
DC is a beautiful area, we just returned from there. Will you spend at least the next 10 years there? Have you found a home and an area you really like? Are there non-financial reasons you want to purchase rather than rent? Do you need to borrow more than 60% of the new home’s price? Those questions may now be more important than whether we are within 10%, either direction, of “the bottom”. If you believe we are looking at another 50% down in housing valuations you obviously should hold off. I suspect some here do, but I see little evidence of that(ok, government’s inability to deal with its own debt addiction) absent total economic disaster well beyond a “double dip” recession. If that occurs the name “Doom” will have been fully earned here, but I’m not sure owning a home verses renting will make much difference for the vast majority of us at that point, since the age of pack cannibals will be right around the corner. Given how such radical housing value drops seem to adversely affect the rest of the economy, creating a real negative feedback loop, I don’t know what one would do with that view of the future. Alternatively, if you believe housing prices will zoom, and you might miss the market, remember that at a 4% compound growth rate it will take 18 years for a home to double in price, so no need to panic. Good luck with a tough choice. BTW, we had a great wine tasting dinner at The Oval Room while in your neck of the woods.
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