Portland Home Values: Case-Shiller February Numbers

The Case-Shiller Home Price Index numbers are out for February and its more of the same as can be clearly seen from the graph above.  From the AP/Oregonian story:

The Standard &Poor's/Case-Shiller 20-city index shows price declines in 19 cities from January to February. The index fell for the seventh straight month. Prices fell at a faster rate in 11 markets in February compared with the previous month.

In the Portland metro area, prices fell 1.8 percent in February and were down 7 percent from February 2010. Only five other cities in the survey had sharper one-month declines. The Portland-area price index is now at a level not seen since the fall of 2004.

Average home prices in all 20 cities are now back to their summer 2003 levels.
High unemployment, stricter lending rules and fears that prices will fall further are among the reasons why few people are buying and selling homes. A record number of foreclosures are forcing down home prices in most metro areas, and prices are expected to keep falling through this year.

Which is pretty much how I'd describe it.  Particularly for the Oregon market, but true in general, continued high unemployment is really keeping housing prices from going anywhere but up down.  Though there has been a continued slow erosion of housing values in Portland, relative to the period of rapid decline, my previous prediction of a long period of trolling along the bottom is still reasonably true.  I'll be most curious to see how the April through July numbers turn out, this will be the first good indication of whether the market is starting to turn.

A Lesson in Incentives

Incentives matter:

Sharp Rise in New-Home Sales in March

WASHINGTON (AP) — Sales of new homes surged 27 percent last month, topping expectations as better weather and government incentives helped sales.

The Commerce Department said Friday that new-home sales rose in March to a seasonally adjusted annual sales pace of 411,000. It was the strongest month since last July and the biggest monthly increase in 47 years.

...

The median sales price was $214,000, up more than 4 percent from a year earlier but down more than 3 percent from February.

The new-home sales report reflects signed contracts to purchase homes rather than completed sales and thus gives economists a feel for how many buyers were out shopping for new homes in a given month.

It is likely capturing consumers who are trying to qualify for federal tax credits that will expire at the end of this month. The government is offering an $8,000 credit for first-time buyers and $6,500 for current homeowners who buy and move into another property.

To qualify, buyers must have a signed contract complete by the end of next week and must complete the transaction by the end of June. Nearly 1.8 million households have used the credit at a cost of $12.6 billion, according to the Internal Revenue Service.

Economist's Notebook: Just Who is Getting the Home Buyer Credit?

Economists always talk about how a tax never stays where you put it. If you tax producers or consumers makes no difference, in the end prices adjust and the tax is shared the same way in either case.

But the same can be said of a credit. The government is giving new home buyers $8000 for purchasing a home, but its it the buyers who are actually getting it? The recent Case-Shiller numbers suggest that a lot of this money is actually going to sellers. It makes sense, if you are a potential buyer and you suddenly have an additional $8000, you are probably willing to pay close to $8000 extra for a home. To try and ensure you get the home you want, you are likely to bid up the price close to that $8000. So call it a home buyer credit if you will, in the end it is more like a home seller subsidy.

That said, it does not make much difference from a public policy perspective. The point of the policy was to get homes selling again and put a floor underneath home values to staunch the bleeding going on in the real estate market and all evidence suggests it has been very successful.

But with the winter season approaching and unemployment still high, it appears that this credit is probably going to need to be extended until spring.

By the way, for econ students a quiz: what determines how a tax is shared among buyers and sellers, and how do you think it relates to the housing market?