The Case-Schiller Index, the gold standard of housing price indexes, showed widespread increases in July versus June.
Housing prices do have an element of seasonality to them, so it is best to look at the seasonally adjusted numbers. Most of the press makes the mistake of using the unadjusted numbers, so this analysis might have some differences from the headlines you see elsewhere.
However, on both a seasonally adjusted and unadjusted basis, the story is much the same: at least for now, the bear market in home prices appears to be over. On a monthly basis, the composite 10 index (or C-10, which has a much longer history) rose to 154.69, a gain of 1.26% on the month and cutting the year over year decline to 12.79%. From the peak in May of 2006, the C-10 is down 31.62%.
The broader Composite 20 index posted a monthly gain of 1.15%; it is off 13.32% from a year ago and 30.60% from the May 2006 peak of the housing market. The gains were widespread, with 17 of the 20 cities posting gains.
While home prices are way off from the bubble peaks, overall they remain about twice as high as the stable 75 to 85 range they were stuck in for almost a decade between 1988 and 1998. In real terms, then, home prices are coming back towards normal — they are not particularly cheap. The graph below (from http://www.calculatedriskblog.com/) shows the history of the two composite indexes.
For the month, the biggest gains came from Minneapolis, rising 3.09%. On a year-over-year basis, prices in the Twin Cities are down 17.3% and are off 29.5% from May 2006. San Francisco took the silver with a gain of 2.90%, but it is down 17.9% from a year ago and 39.46% from the peak. Chicago took the bronze with a 2.10% monthly gain. Home prices in the Windy City are down 14.23% from a year ago and are off 23.33% from the peak.
This time in Las Vegas the house didn’t win, although Vegas does win for losing. For the month, home prices fell 1.85% — by far the largest monthly decline. Over the last year, those who gambled on housing there are down 31.4% and are off 53.30% from the peak. Detroit might have been able to break into the win column in football, but its losing streak in housing continues. Motown posted a 0.36% decline for the month and is off 24.69% for the year and 38.35% from the peak.
Keep in mind that these indexes cover the whole metropolitan area, not just withing the city limits, so it is not just the prices of giveaway abandoned homes in the city center that are still declining. Seattle was the only other city to see a decline for the month, falling 0.26%. It is off 15.36% on a year-over-year basis, and 22.35% from the peak.
The second graph below (also from http://www.calculatedriskblog.com/) has an interesting way of presenting the city-by-city data. It shows the decline from the peak (actually from the individual city peaks; the percent declines I mentioned above were from the national peak date) currently and through December of 2007 (blue bar) and December 2008 (yellow bar). Thus if the red bar is below the yellow bar, prices in that city are down year-to-date.
It shows that there is no real clear pattern between if a city was a big early decliner and more recent price movements. Las Vegas and Detroit were both hit hard early in the housing bear market and continue to face difficulties. San Francisco and San Diego were also hit hard early, but have seen only minor declines year to date. Cleveland was hit early, but has actually been seeing gains so far this year. Dallas and Denver had relatively small early losses and are now also seeing year-to-date gains. Other early holdouts in the price declines like Seattle and Portland are showing some of the largest year to date declines.
The back-to-back increases in the Case-Schiller index are very significant in that they provide some hope that the number of people who are underwater in their houses is going to stop rising (except perhaps in Atlanta. But that is a different issue). Owing more on your house than it is worth is the single largest predictor of if a homeowner will stop paying the mortgage and eventually be foreclosed upon.
Those foreclosures obviously hurt the bottom line of the whole mortgage complex, from the big banks like Bank of America/Countrywide (BAC) that made the loans, to the myriad of institutions that hold the paper that those mortgages were sliced and diced into, to the private mortgage insurers like MGIC (MTG) and PMI Group (PMI) to the GSE’s Fannie (FNM) and Freddie (FRE), and ultimately we the taxpayers, who own 80% of each of them.
I doubt that we will see a rebound in housing prices that will lift significant numbers of people who are currently underwater back into a position of having equity in their houses again. However, this recent stabilization will stop their numbers from swelling further. That is a major step forward and is good news.
Read the full analyst report on “BAC”
Read the full analyst report on “MTG”
Read the full analyst report on “PMI”
Read the full analyst report on “FNM FRE”
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