S&P/Case-Shiller Home Price Indices: Home Prices Extend Gains
Before you start cheering, note that as of November 2012 average home prices across the United States are back to their autumn 2003 levels for both the 10-City and 20-City Composites. (And note the comments below from Robert J. Shiller).
Measured from their June/July 2006 peaks, the decline for both Composites is approximately 30% through November 2012. In November 2012, the recovery for both Composites from their recent lows in early 2012 was approximately 8-9%.
In the 12 months ended in November, prices rose in 19 of the 20 cities and fell in New York. In 19 cities prices rose faster in the 12 months to November than in the 12 months to October; Cleveland prices rose at the same pace in both time periods. Phoenix led with the fastest price rise – up 22.8% in 12 months as it posted its seventh consecutive month of double-digit annual returns.In November 2012, the 10- and 20-City Composites posted respective annual increases of 4.5% and 5.5%, and monthly declines of 0.2% and 0.1%.
“The November monthly figures were stronger than October, with 10 cities seeing rising prices versus seven the month before.” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Phoenix and San Francisco were both up 1.4% in November followed by Minneapolis up 1.0%. On the down side, Chicago was again amongst the weakest with a drop of 1.3% for November."
Blitzer added: “Winter is usually a weak period for housing which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer. The better annual price changes also point to seasonal weakness rather than a reversal in the housing market. Further evidence that the weakness is seasonal is seen in the seasonally adjusted figures: only New York saw prices fall on a seasonally adjusted basis while Cleveland was flat.
Regional patterns are shifting as well. The Southwest – Las Vegas and Phoenix – are staging a strong comeback with the Southeast -- Miami and Tampa close behind. The sunbelt, which bore the brunt of the housing collapse, is back in a leadership position. California is also doing well while the northeast and industrial Midwest is lagging somewhat."
“Housing is clearly recovering," Blitzer noted. "Prices are rising as are both new and existing home sales. Existing home sales in November were 5.0 million, highest since November 2009. New Home sales at 398,000 were the highest since June 2010. These figures confirm that housing is contributing to economic growth."
In November 2012, 10 cities and both Composites posted negative monthly returns. Atlanta, Denver, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, San Diego, San Francisco and Seattle were the ten MSAs to post positive month-over-month returns.
In the context of monthly changes, Boston, Chicago and New York have fared the worst – with more than six months of declining prices in the past 12 months.
The Shiller in the Case/Shiller indices, Robert J. Shiller, professor of economics and finance at Yale University, in an op-ed published Jan. 27, 2013 in The New York Times, cautioned against excessive exuberance regarding a housing recovery.
(link to story: http://www.nytimes.com/2013/01/27/business/housing-markets-future-still-has-many-clouds.html?nl=todaysheadlines&emc=edit_th_20130127&_r=0)
The headline reads : A New Housing Boom? Don’t Count on It and Shiller begins:
"We're beginning to hear noises that we’ve reached a major turning point in the housing market — and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?
"It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down.
"On the one hand, there were sharp price increases in 2012, with the S&P /Case-Shiller 20-City Index, which I helped devise, up a total of 9 percent over the six months from March to September. That comes after what was generally a decline in prices for five consecutive years. And while prices dropped very slightly in October, the trend was quite encouraging for the market.
"But some of these changes were seasonal. Home prices have tended to rise every midyear and to fall slightly every fall and winter. And for some unknown reason, seasonal effects have become more pronounced since the financial crisis.
"After screening out these effects, a number of indicators are up, including data for housing starts and permits as well as the National Association of Home Builders/Wells Fargo Index of traffic of prospective homebuyers, which has made a spectacular rebound since last spring.
"What might explain this picture? It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline inforeclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.
"And, last spring, along with Karl Case [the Case in Case/Shiller] of Wellesley College and Anne Thompson of McGraw-Hill Construction, I conducted a detailed survey of the attitudes of recent home buyers in four American cities, as I discussed here in October. We did not see any evidence of increased optimism. (emphasis mine, DMK).
"In short, it is hard to find an exact cause for the rebound in home prices. But that isn’t unusual — we hardly ever know the real causes of major changes in speculative prices. Yet we do know that any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years.
"After the traumatic collapse of the last price bubble, Americans seem less sanguine about owning versus renting. According to the Census Bureau, the homeownership rate has been falling, from 69.0 percent in the third quarter of 2006 to 65.5 percent in the third quarter last year.
"The housing market has also been subject to new oversight, including that of the Consumer Financial Protection Bureau, which just this month announced new ability-to-repay standards for mortgage lenders. Those standards will make wild lending harder to do.
"So it seems that since 2006, our society — including both buyers and lenders — hasn’t become more speculative in its attitudes toward housing. Instead, it has become more wary, and more regulated.
"The bottom line for potential home buyers or sellers is probably this: Don’t do anything dramatic or difficult. There is too much uncertainty to justify any aggressive speculative moves right now. If you have personal reasons for getting into or out of the housing market, go ahead. Otherwise, don’t stay up worrying about home prices any more than you do about stock prices."
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