Housing price declines lessen further in August

- by New Deal democrat



Housing Tracker's final report of asking prices in 54 metropolitan areas for August is in, and it shows that the YoY rate of declines continues to lessen, now only -2.8% YoY. Here's the updated chart:

Month	2007	2008	2009	2010	2011
January	---	-7.5%	-11.5%	-5.8%	-8.7%
February	---	-7.8%	-12.0%	-5.2%	-8.4%
March	---	-8.3%	-10.9%	-5.0%	-7.3%
April	-2.7%	-8.6%	-9.6%	-5.0%	-6.8%
May	-3.5%	-9.1%	-8.1%	-5.0%	-5.6%
June	-5.0%	-9.8%	-7.0%	-5.0%	-4.4%
July	-5.4%	-10.4%	-6.1%	-5.1%	-4.2%
August	-6.0%	-10.6%	-5.5%	-6.1%	-2.8%
September	-6.2%	-11.1%	-5.1%	-6.6%	---
October	-6.7%	-11.4%	-4.5%	-7.0%	---
November	-6.6%	-11.7%	-4.5%	-6.7%	---
December	-7.2%	-11.4%	-5.6%	-7.8%	---

If this rate of second derivative improvement continues, we could see a YoY increase in asking prices nationwide before the end of the year. If so, that would mean the nominal bottom in housing prices has already occurred -- probably last January (because of the strong seasonality in housing prices)!



Additionally, as Calculated Risk notes, Housing Tracker's updates continue to show that inventory is also declining.



Note that Housing Tracker is current through last week, vs. this morning's Case-Shiller report, which is an average of April, May, and June. Because of the distortions resulting from the $8000 tax credit that expired in spring 2010, it is interesting to compare 2011 YoY vs. 2009 Case-Shiller index as well as 2011 YoY vs. 2010. Here are the numbers - the first column is vs. 2010, the second vs. 2009:



February: -3.5% -2.7%

March : -3.9% -1.4%

April : -4.2% -0.6%

May : -4.5% 0.0%

June: -4.5% -0.6%



With May and June's data, I suspect the YoY% declines in the Case-Shiller index have made a trough. In the next month or two, with the end of the YoY housing credit distortions, I expect Case Shiller to join Housing Tracker (which is current through last week) in reporting "less worse" declines.



Additionally, with today's data we can see that the seasonally adjusted Case Shiller 20 city index has meandered within a range of less than 1% in the first six months of this year. I bet that little fact isn't getting mentioned on other blogs, is it?



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BTW, Dante Atkins a/k/a thereisnospoon has a piece up at Digby's Hullbaloo, purporting to show that present housing prices are still way too high. While I very much appreciate his political commentary, this economic piece is badly misleading.



The "roller coaster ride" of prices is not adjusted for YoY% changes in housing prices For example, there was a 10%+ decline in real housing prices between 1926 and 1933. Even more glaring, there was a 35%+ decline in housing prices between 1912 and 1921 -- almost identical to the declines since the beginning of 2006 till now. Go back and watch the roller coaster ride and pay attention to the markers that tell you when you are in the 1910's, 1920's and the Great Depression. The "roller coaster" stays almost completely flat -- during two of the three worst downturns in the last 100 years!



Thereisnospoon suggests that housing has much, much further to fall, but in fact, this series has never been at a level under 110 since 1949. It is presently at about 132, and thus is only about 15% higher than its lowest reading in 62 years. I expect almost all of the remaining adjustment to take place via inflation rather than a continuing decline in nominal prices.

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June YoY house price declines least since May 2007

- by New Deal democrat

Consider two different scenarios by which house prices could still decline 25% in real, inflation-adjusted terms, from the present:

(1) nominal prices decline 5% a year for 5 years, and inflation is 0% over that time.
(2) nominal prices do not decline at all over the next 5 years, but inflation is 5% a year.

Both of those give us "real" price declines of 25%, but with very different results, and very different amounts of pain.

In the first scenario, more and more homeowners are "underwater" with houses not worth what they paid for them, and not even worth the outstanding mortgage amount. They are unable to sell, since they can't bring cash with them to the closing table to make up the difference. More and more allow their houses to slide into foreclosure, thus increasing the shadow inventory of bank-owned houses.

In the second scenario, however, no more homeowners whatsoever are "underwater." Even better, mortgage payments - and purchases - are made with inflated currency. There is no further incentive to hand in the keys and walk away from the house, and shadow inventory is worked off.

Needless to say, the second scenario is a lot less painful than the first one and yet accomplishes the same result.

Over the last several weeks, I've read more and more commentary suggesting that at least nominal prices in the housing market might start to make a bottom. Now that we have the most recent Case-Shiller report (from April, but really a February, March, and April average), and the final June asking price data from Housing Tracker, which accurately showed the turn at the top of the market in 2006, let's take a look at whether housing prices may better fit the first or second scenario.

Here is the updated chart of YoY% change in asking prices from Housing Tracker's 1,000,000+ home database:

Month	2007	2008	2009	2010	2011
January	---	-7.5%	-11.5%	-5.8%	-8.7%
February	---	-7.8%	-12.0%	-5.2%	-8.4%
March	---	-8.3%	-10.9%	-5.0%	-7.3%
April	-2.7%	-8.6%	-9.6%	-5.0%	-6.8%
May	-3.5%	-9.1%	-8.1%	-5.0%	-5.6%
June	-5.0%	-9.8%	-7.0%	-5.0%	-4.4%
July	-5.4%	-10.4%	-6.1%	-5.1%	---
August	-6.0%	-10.6%	-5.5%	-6.1%	---
September	-6.2%	-11.1%	-5.1%	-6.6%	---
October	-6.7%	-11.4%	-4.5%	-7.0%	---
November	-6.6%	-11.7%	-4.5%	-6.7%	---
December	-7.2%	-11.4%	-5.6%	-7.8%	---

The YoY -4.4% decline in June is the smallest YoY decline since May 2007. Here is the same information (through 2 weeks ago) shown graphically (h/t Silver Oz):


In comparison, here is the YoY% change up through the February - April average in the Case-Shiller 20 city index:



Over the time period of comparison, the Housing Tracker trend in asking prices has appeared to run 1 to 4 months ahead of the Case-Shiller sales data. Keep in mind that the most recent Case-Shiller data compares sales from a period when buyers and sellers wanted to close quickly to take advantage of the $8000 housing credit, with a period one year later where there is no credit. Even so, it looks like the YoY% change may be close to bottoming.

I fully expect the Case-Shiller series to bottom out in YoY% terms within the next several months, and to mirror the more current better YoY comparisons in the Housing Tracker database. In other words, it continues to look like the second scenario set forth above is going to be closer to the truth, and among the possibilities, that's good news.

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New aggregate Housing Tracker data tears down conventional wisdom

- by New Deal democrat

Yesterday provided some perfect examples of the conventional wisdom about the housing market - namely, that recent new declines in the Case-Shiller Index show that we are spiraling down into the double-dip of Doom.

Jeff Cox of CNBC wrote:

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression.

Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

Writing at the Huffington Post, David Paul of the Fiscal Strategies Group was even more pessimistic, writing that Those Waiting for a Housing Market Rebound May Have a Long Wait Ahead:

Even with the sharp contraction in prices that we have realized since the unraveling of the mortgage bond market almost three years ago, housing prices remain high by historical standards ....

[W]ith the expiration of the first-time homebuyer tax credit and looming end to the quantitative easing ..., the housing market is only now being left to face the brunt of post-crisis market forces without those two forms of federal support. As that support falls away, it is hard to be optimistic about the direction of the housing market ....

... S&P projects that when all is said and done, home prices will fall 35% from their pre-crisis peak, meaning that we have another 15% downside to go. Yet by historical standards, this will not produce "cheap" prices as S&P suggests, but rather return prices to within historical norms. But whatever bottom is ultimately reached in housing prices, a resurgent housing market will also require an environment that provides reasonable expectations for asset price stability, if not appreciation. And this appears unlikely to happen any time soon.

(my emphasis)

To begin with, let's take a look at the Case-Shiller 20 City index and see what all the hubbub is about. Essentially Cox is saying that the small downturn in the below graph (showing prices as a percent of the April 2006 peak) for the last 9 months, putting its value slightly below its 2009 lows, was just enough to make the difference between a skosh above Great Depression declines, to a skosh below them:

To the contrary, I submit that the above graph shows that there is no descent into the abyss discernable in house prices over the last 2 years.

Furthermore, certainly as to the Case Shiller 20 city index (red in the graph below vs. the 10 city index in blue), real inflation-adjusted prices have fallen to year 2000 levels and are certainly in their pre-bubble normal range for the last 24 years since either series was begun:



This doesn't mean that real prices can't fall further. But what it does mean is that most if not all of the remaining decline might not be in nominal prices. Nominal prices could easily stabilize while inflation means that the "real" value of housing continues to decline, just as it did in the earlier 1990's.

And that brings me back to the 1,000,000+ asking price database from Housing Tracker, which accurately showed the turn in the market in 2006 - a fact I know because I documented it at the time. On Monday, using an unweighted average from the 54 metro areas tracked in the database, I showed that the YoY% decline in asking prices was rapidly abating, and that if the trend continued at the same velocity, a bottom in prices could be reached as early as next winter.

As chance would have it, over the weekend for the first time the site added aggregate information for the entire US from April 2006 to the present. This means that I can easily calculate the YoY% changes in asking prices nationwide since the peak of the market, right up until last week (marked with an asterisk in the chart below):

Month	2007	2008	2009	2010	2011
January	---	-7.5%	-11.5%	-5.8%	-8.7%
February	---	-7.8%	-12.0%	-5.2%	-8.4%
March	---	-8.3%	-10.9%	-5.0%	-7.3%
April	-2.7%	-8.6%	-9.6%	-5.0%	-6.8%
May	-3.5%	-9.1%	-8.1%	-5.0%	-5.6%
June	-5.0%	-9.8%	-7.0%	-5.0%	-4.5%*
July	-5.4%	-10.4%	-6.1%	-5.1%	---
August	-6.0%	-10.6%	-5.5%	-6.1%	---
September	-6.2%	-11.1%	-5.1%	-6.6%	---
October	-6.7%	-11.4%	-4.5%	-7.0%	---
November	-6.6%	-11.7%	-4.5%	-6.7%	---
December	-7.2%	-11.4%	-5.6%	-7.8%	---

The weighted average shows a similar abatement in YoY% declines this year as did the unweighted average I calculated on Monday. Generally we can see that the declines got worse and worse until the $8000 credit was enacted. The declines rapidly abated, and then increased again as soon as the credit expired. (Also, Calfiornia had a temporary, additional $10,000 credit which enhanced the effect there). But the declines have swiftly abated again this year as "real" prices approach their historical norms and inventories continue to decline to lows not seen since 2006. In fact, the 4.5% YoY decline reported for last week is equal to the smallest decline in 4 years.

Here is the same information from the chart above shown graphically (h/t Silver Oz):


This is a series that, even without artificial government support, wants to continue to trend towards the zero threshold.

In comparison, here is the YoY% change for the same period of time in the Case-Shiller 20 city index:

The Housing Tracker trend in asking prices appears to run 1 to 4 months ahead of the Case-Shiller sales data, which as of the moment is only available through March. Even in the Case-Shiller series, it looks like the YoY% change may be close to bottoming.

To put it bluntly, an examination of the newly available aggregate US asking price data from Housing Tracker contradicts the conventional wisdom above that, as "the housing market is only now being left to face the brunt of post-crisis market forces, it is hard to be optimistic about the direction of the housing market," that "we have another 15% downside to go," and that "reasonable expectations for asset price stability, if not appreciation [a]ppears unlikely to happen any time soon."

To the contrary, housing prices have already "faced the brunt of market forces" without support for a full year, as a result of which they have been falling closer and closer to equilibrium, the rate of decline is abating, and actual real time data shows that nominal if not inflation adjusted stability may indeed be reached as soon as early next year.

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