Housing price decline “moderating”?

posted at 11:25 am on June 28, 2011 by Ed Morrissey

How can a report on a falling economic indicator demonstrate some level of optimism?  Reuters unexpectedly demonstrates the technique in a report on a further drop in seasonally-adjusted average home prices in the latest S&P/Case-Shiller index, in an article headlined “Home price decline moderates in April”:

Home prices dipped in April from March, though the pace of decline moderated at the start of the spring buying season, a closely watched survey said on Tuesday.

Even so, economists cautioned house prices will likely continue to crawl along at low levels, and could have further to fall, as the battered housing market works through an excess amount of houses for sale, ongoing foreclosures, tight credit and weak demand.

The S&P/Case-Shiller composite index of single-family homes in 20 metropolitan areas dipped 0.1 percent on a seasonally adjusted basis. A Reuters poll of economists had forecast a decline of 0.2 percent.

Do I believe that we’re closer to finding a bottom in the market?  Well, we’re certainly closer than last year, but that’s pretty obvious given the fact that housing prices have continued to decline.  Wherever and whenever that bottom is, we’re approaching it.  The question is distance rather than direction, isn’t it?

Is there any indication that housing prices will stop falling any time soon?  Not really.  Reuters does note that non-seasonally adjusted prices rose for the first time in eight months, but that rise eight months ago didn’t stop housing prices from falling afterward then, either.  Housing prices will continue to fall as long as prices still outstrip market value, and that relies on two factors: the amount of irrational valuation still left in the market from the 1998-2008 bubble, and the inventory of foreclosures.  Foreclosures are difficult to gauge, mainly because it relies on whether currently stressed homes will end up in default, which depends on job creation and unemployment.  Neither of those factors give a lot of confidence that we’re turning a corner.

How about home prices and their position in the bubble?  That news doesn’t look good at all, as this chart from the S&P/Case-Shiller report demonstrates:

The chart shows (as does the data) that the 10- and 20-city composite price indices have returned only to the 2003 valuations, or about halfway up the bubble.  Valuations won’t fall all the way to 1999 levels, as inflation also factors into home prices, but even with that prices have to fall at least a little to relink home prices to inflation.  Had the 10-city composite index grown at a steady 3% annual inflation rate from December 1999 forward, which would have somewhat outstripped inflation during the period, the index would have reached 128.1 in January 2008 at the start of the recession.  Assuming we would have avoided the entire economic crisis due to the housing bubble collapse, we would now be at 141.2 rather than 154.7, but the more realistic bottom probably falls somewhere between the 128.1 and 141.2 figures.  I’d guess, under current conditions, that it’s closer to the 128.1 figure.

That’s not as big of a drop as we have seen, but that’s only because of how much irrational valuation we’ve managed to wring out over the last three years.  If we can keep government from interfering with the process, we might get the rest of it out and reposition the housing markets for their traditional, inflation-linked long-term growth — but if we can’t stop foreclosures and joblessness from undermining rational valuations, we may keep right on tumbling.

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So already the election spin begins in earnest.

SouthernGent on June 28, 2011 at 11:29 AM

Bawney Fwank save us!

Roy Rogers on June 28, 2011 at 11:31 AM

No, just wait until 1) 20% down payment is required 2) FHA loan program is dead 3) The privitization of Frannie and Freddie 4) Mortgage rates of 8%-10%, which is the norm.

Oil Can on June 28, 2011 at 11:31 AM

Housing price decline “moderating”?

But is it “moderating”……….wait for it…….wait for it…..UNEXPECTANTLY?!!!!

pilamaye on June 28, 2011 at 11:35 AM

I have a friend who is a broker, she said that for a while there were buyers but the appraisers were valuing the houses why under the offered price and even buyers with good down payments had to walk away. Now she says there isn’t anyone even interested in trying.

Cindy Munford on June 28, 2011 at 11:37 AM

So already the election spin begins in earnest.

SouthernGent on June 28, 2011 at 11:29 AM

You ain’t seen nuthin yet!

Chip on June 28, 2011 at 11:38 AM

Pure bs headline. We have family members currently trying to buy and sell a house. It is not even remotedly good. There is one community here that has such an inventory of huge homes that the prices are falling fast in an effort to sell quick before the start of school. It is a market in which to just stay put.
It also must be looked at oobjectively while attempting to stop liberal power. They have utterly destroyed the housing market all while demonizing big business. What a joke.

ORconservative on June 28, 2011 at 11:39 AM

I won’t have to pay my mortgage anymore!

/peggy joseph

KeepOhioRed on June 28, 2011 at 11:40 AM

So things got worse, but unexpectedly not as bad as predicted, so that’s good?

John Deaux on June 28, 2011 at 11:41 AM

The Zillow prices for SoCal makes me sooooo hungry to buy a place. Beach living + Prop. 13 for only $300K! And they’re still dropping!

Apologetic California on June 28, 2011 at 11:43 AM

Historically housing appreciates 1% above inflation. So the right metric would be 4% instead od 3%. We’re not too far from bottom. I say another year or so. But any appreciation 2012-2015 will be zilch.

angryed on June 28, 2011 at 11:43 AM

Beach for 300k? Where? What do you get for that ( house, condo, etc).

Last I checked 2 bdrm shithole walking distance to beach in Santa Monica was 700k.

angryed on June 28, 2011 at 11:46 AM

Expect The Unexpected, or even better Embrace The Unexpected are both kinda Hopey Changey and should be on the short list of 2012 Obama slogans, as they mount their effort to make chicken soup out of chicken shin.

Drained Brain on June 28, 2011 at 11:46 AM

When you are trending a trend that is against your expertise… you should get out of the business.

Odie1941 on June 28, 2011 at 11:52 AM

Ed: If Reuters was not bad enough, this is the AP headline….

Spring buying boosts home prices in 13 US cities

PatriotRider on June 28, 2011 at 11:53 AM

Fortunately, I live in what I’m sure is my last house as long as I can afford the taxes. It’s on 5 1/2 acres next to a National Forest, comfortable, in God’s Country (Texas) and paid for. As long as government interferes with the marketplace, serves as a savior for “too big to fail” lenders and promotes home ownership (or anything else) stuff like this will happen. Unfortunately, the “free market” will get the blame and more government interference will be the “cure”.

cartooner on June 28, 2011 at 11:56 AM

The Zillow prices for SoCal makes me sooooo hungry to buy a place. Beach living + Prop. 13 for only $300K! And they’re still dropping!

Apologetic California on June 28, 2011 at 11:43 AM

Add in the additional costs of spanish lessons and appropriate hardware and consumables…

slickwillie2001 on June 28, 2011 at 11:57 AM

Beach for 300k? Where? What do you get for that ( house, condo, etc).

Last I checked 2 bdrm shithole walking distance to beach in Santa Monica was 700k.

angryed on June 28, 2011 at 11:46 AM

Your zillow-fu is weak :D There’s a ton in Playa del Rey and a few more at Marina Del Rey. I see one in Ocean Park and several more in the South Bay. When I mean coast, I mean COAST, i.e., west of the PCH. If you increase the cap to $350K and assume that you can negotiate this baby down to
$300K, a lot more pops up. Naples! Belmont Shore! Huntington Beach! Newport BEach! Dana Point! It’s a coastal fire sale.

Apologetic California on June 28, 2011 at 11:59 AM

“Worst economy since the great depression”

The left was saying that, what, back in 2005?

WitchDoctor on June 28, 2011 at 12:01 PM

Add in the additional costs of spanish lessons and appropriate hardware and consumables…

slickwillie2001 on June 28, 2011 at 11:57 AM

Day laborers are not cheap anymore. There’s a lot less of them around and those who stay are charging $15/hr here. I’m not kidding. We’ve spent decades relying on them that people have lost all handyman skills and have no choice but to hire them.

Apologetic California on June 28, 2011 at 12:01 PM

Worst conditions since Fannie blew up in November of 2007.

Del Dolemonte on June 28, 2011 at 12:02 PM

Add in the additional costs of spanish lessons and appropriate hardware and consumables…

slickwillie2001 on June 28, 2011 at 11:57 AM
Day laborers are not cheap anymore. There’s a lot less of them around and those who stay are charging $15/hr here. I’m not kidding. We’ve spent decades relying on them that people have lost all handyman skills and have no choice but to hire them.

Apologetic California on June 28, 2011 at 12:01 PM

Unfortunately for you – California has mastered the Law of “Unintended Consequences.”

Odie1941 on June 28, 2011 at 12:04 PM

My realtor friends all say the backlog of houses on the market and general economic uncertainty will continue to depress sales and prices for at least a couple of years.

novaculus on June 28, 2011 at 12:06 PM

Adjust these figures for inflation and the real picture shows.

esnap on June 28, 2011 at 12:07 PM

I guess we’ve been down so long, that it looks like up to us.

Knott Buyinit on June 28, 2011 at 12:07 PM

I guess this is like during 2009 (and once again currently), when a dip in the rate of job destruction was reported as a leading indicator in the Bright Glorious New Age of Economic Recovery.

I don’t begrudge them their stupidity, only their perfidy. Would they have issued this report three years ago? And would they issue it three years hence?

HitNRun on June 28, 2011 at 12:10 PM

Plummet.

forest on June 28, 2011 at 12:10 PM

There is still an enormous “shadow” inventory of foreclosed homes, and the broken title issue has not been resolved.

There is still plenty of space until the bottom is reached.

Rebar on June 28, 2011 at 12:15 PM

As long as unemployment is high, there is not going to be a heavy demand for new homes.

Go figure.

GarandFan on June 28, 2011 at 12:15 PM

How can a report on a falling economic indicator demonstrate some level of optimism?

When you’re dealing with people that think a smaller increase is a cut, this is easy…

golfmann on June 28, 2011 at 12:23 PM

Of the 20 metro areas for which housing prices are tracked individually, the largest increase by far occurred in DC.

DKCZ on June 28, 2011 at 12:24 PM

300k sounds cheap. but add 40k a year for private school and it’s kinda pricy.

angryed on June 28, 2011 at 12:28 PM

some facts from the front lines

VA loans with $0 down still easy for qualifying vet to obtain

fha with 3.5% down no harder to obtain now than 5-10 years ago

conventional loans with less than 20% coming back. in additon to HomePath, FNMA’s proprieatary product, PMI companys across the nation are beginning to offer coverage on Owner Occ purchases up to 97% again.

the credit markets have essentially recovered.

lending practices have returned to ‘sane’ late 1990′s levels minus ‘sub-prime’ products.

hard money ‘equity lenders’ are returning to the market and are not as unpallatable as they used to be due to the Fed rule implemened on April 1.

in general, prepay penalties, baloons and other such restricions are gone forever.

heard it on the street: ‘stated income’ based on bank deposit averages will make a comeback later this year, which is good news for many self employed tax cheats.

DrW on June 28, 2011 at 1:05 PM

How can a report on a falling economic indicator demonstrate some level of optimism?

When you’re dealing with people that think a smaller increase is a cut, this is easy…

golfmann on June 28, 2011 at 12:23 PM

Don’t forget, a tax cut is now ‘spending’. A tax increase that you forego is also ‘spending’. The progs are very purposely dumbing down the population.

slickwillie2001 on June 28, 2011 at 1:26 PM

Hey look, the nth derivative has flipped positive!
MISSION ACCOMPLISHED.

Kenosha Kid on June 28, 2011 at 2:05 PM

I saw a report, and I’m sorry that I don’t have it to link, but essentially it showed that it takes 20-25 years for housing prices to recover AFTER they finally hit bottom.

Mahdi on June 28, 2011 at 2:06 PM

The decline should slow down in the summer because of one reason. No schools. Summer is where the majority of home sales occur. Fall and winter are the worst seasons to sell a home.

If summer home sale is boarder line or negative than expect much worst in the coming months.

jdun on June 28, 2011 at 2:34 PM

We’re waiting on a short sale house for our daughter… It’s been 3 months and counting with no word from the bank.

The house is in okay condition but needs work on the roof. The longer it sits empty with the yard growing up and the more rain that we have, it’s making us nervous about what condition it will be in if her offer is ever accepted.

Fallon on June 28, 2011 at 2:59 PM

I own a real estate title company pushing up on 20 years in the business. From that perspective I’ll say that this is more of the same crap we have seen since this started. The real problems started in a handful of states and in several states in only a handful of areas. Many of the problems in much of the non-large-urban-area-Midwest, where prices were not nearly as inflated and where there are few illegal immigrants mortgaged to the hilt who started the cascade in Florida and Nevada which rippled into MO, KS and IN to name a few places, were not significant to start with. Rather things were going pretty well until the media started yammering nightly about the national housing crisis. Fact is, in our region we have had little real problem. Unemployment is fairly in check, house prices have mostly dropped their 10% or so over-inflation. The problem has been the people being scared by national media presenting what is even now to a great degree localized problems in housing as something effecting everyone everywhere. The real estate professionals in this region have spent a lot of money debunking overgeneralized data like above.

Face it. If you live in Moderate Size Town, Midwest, USA and you read something that says “10 or 20 city composite of violent crime rate” you aren’t going to lock the door and panic that you are in imminent danger of being assaulted or raped. You are going to think, “Glad I don’t live in one of those urban hell holes where that stuff happens.” Well, the “mortgage crisis” has been much more like that than DC, large financial houses, lenders or MSM lead you to believe.

deepdiver on June 28, 2011 at 3:16 PM

Kind of strange how house prices skyrocketed after they started forcing banks to lend to people regardless of their credit. Very strange, actually.

JavelinaBomb on June 28, 2011 at 4:17 PM

If there’s any truth to the old idea that mortgage payments shouldn’t exceed 28% of the buyer’s salary, house prices are going to continue to drop until (in a given market) the average buyer can buy the average house with monthly payments of 28% of his income. The percentage may not be exactly 28%, but that’s the basic reality.

Incidentally, this rule of thumb also lets us tell if a particular housing market is overpriced.

PersonFromPorlock on June 28, 2011 at 7:58 PM