Housing has Bottomed Out

Or so says Calculated Risk who has a couple of nice graphs to help make his point:

Both of these graphs suggest that we may have bottomed out on the construction side, but what about prices?  Here is CR again:

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgagesettlement, the HARP refinance program, and more).

Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties - especially some states with a judicial foreclosure process - will probably see further price declines.

And this doesn't mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.

I think he is essentially right. We do seem to have hit the bottom but there are a lot of factors that will keep a lid on prices for some time: unemployment, foreclosures, uncertainty, tight credit, etc. But I would not be surprised to see 2012 end with modest gains in average home values as measured by Case-Shiller. And I think Portland will be one of those areas in which we will see improvement by the end of the year.

I think the thaw has begun.

Portland Home Values: Case-Shiller February Numbers

The latest Case-Shiller numbers are out and are pretty dismal for Portland:

The March and April numbers will probably be better thanks to the expiring federal incentives, the late spring and summer will tell us a lot about whether the fledgeling recovery can help counteract the continuing fallout of the sustained high unemployment rate.

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.

Portland Home Values: Case-Shiller November Numbers

The November Case-Shiller numbers are out and Portland was one of only five cities to see an increase over the month before. This is a bit interesting because of the high unemployment rater in Oregon. Clearly the two-pronged approach to the housing market - the new homebuyer tax credit and the Fed's intervention in the long term debt market to keep mortgages low - was a big part of the story here. This is evidence that the hosing market in Portland has stabilized for now, but I expect some erosion in values through the winter and unless the pace of job creation picks up significantly I don't see much hope for any near-term sustained increase in values.

Here is the graph of the raw month to month numbers:



Here is the graph of the year-to-year percentage change in home values:

Portland Home Values: Case-Shiller October Numbers

Portland home prices stayed pretty much stable in October and have essentially stayed stable for the whole of 2009 after eroding significantly in 2008.

The graph below is of the raw data and in it you can see the run up in values, the fairly sudden erosion and the bottoming out. The big question is, of course, will this bottom hold? I think that it will, but only if the economy doesn't go into double dip recession, which I think is unlikely.


Here is the graph of the year over year change in monthly home values since 2006. As is evident, we are still down but trending up.



The new homebuyer tax credit was certainly a part of the story but the traction that this had is likely to subside due to seasonal reasons, the cost of financing which is on the rise and the declining population of people who can take advantage of the credit. I imagine that values could decline in the winter months a bit but I think the substantial erosion is over. That said, if unemployment stays high, the erosion will start anew.

Portland Home Values: Case-Shiller September Numbers

Okay, so I try to take a week off and something always happens, in this case the Case-Shiller September numbers. So here are two snapshots. The first is the raw data showing an ever so slight increase in the 20 city composite and in Seattle, but a every so slight drop in Portland (12% unemployment anyone?).


The second is the year-over-year change in the monthly numbers, and here we see the trend is still improving but weakening...



This is consistent with what I expect from the unemployment situation and what I talked about on OPB.

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?

Portland Home Values: Case-Shiller August Numbers

The August Case-Shiller numbers are out and the news is good...for now. The housing market appears to be stabilizing in Portland and across metro areas in the US. This first picture is the raw C-S numbers for Portland, Seattle and the 20 city composite.



The next picture is the year over year change in home values for the same three indices.



The combination of low interest rates for mortgages and the new home buyer tax credit seems to be having a substantial impact, however with the tax credit potentially expiring (if it is not extended), high unemployment and a shadow inventory of foreclosed properties that will take a while to work through the market, I would not get too optimistic about the next year or so. I would expect these to take a dip in the winter and perhaps, finally, by the middle of 2010 we'll see sustained improvement.

Portland Home Values: Case-Shiller July Numbers

Heading off to the airport, so here is the picture: edging slightly higher in July. Would not be surprised to see it fall again slightly in the Fall.

Portland Home Values: Case-Shiller June Numbers

The June Case-Shiller numbers are in and the news is good for Portland: a healthy jump in home values from the month before. No one should get too excited, we are still well down from the peak, the numbers could reflect simply a seasonal bump, and there are still many out there who predict housing prices will continue to fall especially due to the rising foreclosures arising form unemployment. Nonetheless, it is another indication that we are, hopefully, nearing the bottom of the recession. It is also an indication that efforts on the part of the Fed and the Obama administration to stir a little life into the housing market has worked. Mortgage rates are exceptionally low and it appears that many are choosing this opportunity to become first-time homebuyers. All in all, I expect that the erosion in home values is essentially over, we may see a little more in the fall and winter, but nothing too substantial, but it will be a few years before any really healthy appreciation happens again.

The above graph charts the raw numbers and this graph below shows the year over year percentage change in home values for Portland, Seattle and the 20 city composite.

Oh, and by the way, apropos of the previous post, the stabilization in the housing market should help stabilize the MBS market, perhaps restoring the market for those 'toxic assets.' Maybe the Fed was right after-all...

Portland Home Values: The May Case-Shiller Update

Portland home values, according to the Case-Shiller index, ticked up slightly in May compared to April (a 0.1% gain). This is not unusual, as the seasonal pattern of home values has, for the last two years and in the midst of the general erosion in home values, seen slight improvement in the May and June months. Still, it is better than continued decline. That said, the decline in home values from last May (2008) is over 16%, whereas the change from May '07 to May '08 was only a little over 5%, so the overall trend has been accelerated erosion in home values.

Have we hit bottom? Probably not. There are lots of distressed properties out there not yet on the market and lots of distressed families as evidenced by the high unemployment rate. Still, news that sales have picked up is encouraging, it at least shows that the combination of low interest rates and good deals in the housing market are driving activity. But we are a long way from the end in my opinion. I think the precipitous decline in home values is over, but it will be a while before we see any real appreciation.

For a nice look at home values and trends by metro area, the Wall Street Journal has an interactive chart. In general, as they have for a while, Portland and Seattle fall somewhere in the middle: not as bad as places like Phoenix, Las Vegas, San Francisco, Miami and Detroit, but worse than places like Dallas, Denver, Cleveland and Boston.

Portland Home Values Down Again

The April Case-Shiller numbers are out and Portland's home values dropped 0.6% since March and 16% since last year at this time. The Wall Street Journal has a nice summary. I think the employment situation is really starting to hit the housing market which counters the low mortgage prices and the incentive programs. However, anecdotally, I haven't seen a huge difference in close-in neighborhoods in terms of homes for sale or length of days on market, so my impression is that this is still largely a suburban phenomenon.

Housing Markets: Inventories

Busy day, so I'll punt to the Calculated Risk blog. Here is a nice graph of changes in home inventory levels. Now, of course, there are homeowners waiting on the sidelines and new foreclosures driven by unemployment to come, but it good to see movement in the right direction:



This is also why new housing permits/starts are a good sign of economic activity but this activity doesn't really help market for residential housing.

Portland Home Values: The March Case-Shiller Update

From the Case-Shiller Home Price Index for March 2009, some lovely pictures.  First the raw data:

Still shows a serious erosion of home values in the winter of 2009.  Here is the year over year percentage change in home prices:

These are still declining for Portland and Seattle but the 20 city composite may be leveling off and even turing upwards.  These data are too old to assess the current situation with summer approaching and mortgage rates incredibly low.  But again, unemployment is very high, so where is the demand going to come from?

The Wall Street Journal article has a nice interactive graphic and also reports on the jump in consumer confidence - which with the increase in the leading indicator improvement give optimists like me some small hope that the end of the decline may be here by the end of the year.  Then it'll just be the digging out that we'll have to worry about (and probably for years).

The Portland Housing Market: The February Case-Shiller Numbers

Sigh...here we go again.  The Case-Shiller numbers are out and they are grim.  There is no end in sight to the erosion of home values in Portland, we just seem to be picking up steam.  Here is a graph of the the raw numbers for PDX, Seattle and the 20 city composite:

Here are the year to year percentage changes in the Portland numbers:



However you look at it, the story is not pleasant. The usual caveats - these are February numbers, heavily influenced by property values in suburban developments, etc. - all apply. But with unemployment so horrendous, it is hard to see where and when it will all end.

Update: From Calculated Risk, something to make you feel better.

Portland Housing Market: Case-Shiller January

Last week I posted on some interesting data from the OFHEO. That data showed a modest gain in January home values. Today the Case-Shiller numbers came out for January and they show a steep decline. Here is the graph for Portland, Seattle and the 20 city composite:

What explains the discrepancy? Well, the OFHEO numbers could just be an error (they are preliminary and are subject to revision), or a statistical anomaly from the fairly low home sales in January, but it could also reflect the key differences in the two indices. The CS data are for 20 major metropolitan areas and include all houses of any price. The OFHEO is for both urban and rural areas and include only houses with conforming loans. So if it is expensive houses and urban areas that are driving the downturn in average home values in the US, this could different numbers in the two indices. But these are so different, I suspect the OFHEO data is an aberration.

These are for January and what will be key is to see how home values are responding to the current fed programs and low mortgage rates. What will the March through June numbers look like in other words? Given the dismal employment picture I am not too optimistic

Home Prices: Some Good News?

I am not so excited about home sales data, housing starts or median prices, but I am cautiously optimistic about this: the latest OFHEO data on home prices using repeat sales data shows an uptick in home values from December to January for the US as a whole (1.9%) and for all regions but the Pacific. What explains this? Well it could be an anomaly - sales were scarce and this could cause results that do not represent an overall trend - and it could be the lowering cost of mortgages along with some pretty cheap homes. Who knows, but it is better than another bad report in any event.

We will know soon whether this is a robust result when the other repeat sales data index, the Case-Shiller, releases the January numbers next week.

Oregon Homeowners Underwater

From the Calculated Risk Blog comes this interesting graphic constructed from data released today from the First American CoreLogic Negative Equity Report for December 2008.

This shows the proportion of mortgaged properties 'underwater,' or whose value is less than the amount owed on the mortgage. What is comforting is that Oregon is in the bottom few states in terms of negative equity. This could get a lot worse if the job market continues to decline rapidly, but could be helped by the Obama mortgage plan as well as the stimulus and the bailout. The moral for the moment is that we may be one of the worst hit states in terms of unemployment, but at least our housing market is not is complete disarray. Still the number of unsold homes relative to sales is pretty dismal.

Sigh, I'll be so glad when I can start to report actual positive economic news again...

Portland Home Prices Plunged in December

The latest Case-Shiller numbers are out.  I'll keep it simple and show the data in a graph.  Ouch.  Economists debate about how much people's attitudes about their own economic situations are relative to those around them, so in case yours is highly relative, I include San Francisco.  These are the December numbers, so we are two months behind, and there is evidence that the incredibly low prices are starting to bring investors back into the market.  But here in Portland, on average, homes are back to being worth what they were in September 2005.  Wow.  

Portland Housing Market

Ryan Frank of The Oregonian has the story today of home sales in Portland hitting a record low in January. They also have a pretty frightening picture of how long it would take to sell all the available houses at current rates. Here is their graphic:

But this is a bit misleading, home sales will pick up and inventories are adjusting to the new reality. Here is a chart made using the tools available at Altos Research:

Average days on the market started to decline in mid January and the inventory has declined quite a bit likely because of people who once might have sold when the market was robust are keeping properties off the market by delaying moves, renting, etc.

The full brunt of the unemployment situation has yet to hit real estate, however, so this all might start to change rapidly this spring...