The Case Shiller Home Price Index results for March 2009 have been reported. In most of the 20 cities in the index steep prices continue. On a year over year basis (YoY) the price declines have been dramatic in many major metropolitan areas:
- Chicago: -18.6%
- Detroit: -25.7%
- Miami: -28.7%
- San Francisco: -30.1%
- Seattle: -16.1 %
- Phoenix: -36%
"The Case-Shiller 20-city index dropped 18.7% year-over-year, also a record. It fell 18.5% during the last three months of 2008. This index has plummeted 32.2% from its July 2006 peak and has fallen 32 straight months. CNN Money"
In Washington, DC prices are down 18.4% from March 2008 till March 2009; and from peak price, prices are down 33.8%. Expect further prices declines during 2009 in the Washington metropolitan area especially since mortgage rate are rising. It is likely that nominal price declines will be another 5 - 15% in most parts of the Washington, DC area. The peak price in the Case Shiller Home Price Index for the Washington, DC metro area was 251.07 in May 2006. Currently, it is at 166.01. It is likely that the nominal bottom will be between 141 - 151.
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Disagree. Nominal bottom will be back to baseline of 100, or even less with an overshoot. Interest rates are going to rise putting further pressures on nominal prices. Unempoyment numbers remain dismal. Foreclosures are entering mainstream society with increasing numbers. Sellers are starting to live in great fear.
ReplyDeleteThis is one bell-shaped curve that will be respected.
nonpartisan,
ReplyDeleteI think you are missing the value of inflation. After just over 9 years, 2000 to mid 2009, there has been much inflation in wages and rent which should support a home price index of around 140 - 150 in the DC area.
Yep - there is nothing, I repeat nothing in the data to suggest that we go below 140. The entire country started down this path to hell in mid 2006 - DC was no exception. The only difference was the rate of decline - given the rise in prices, DC's fall is not very impressive (all things considered).
ReplyDeleteIn fact, in order for Nonpartisan's wishful thinking to come true, DC would have to continue declining at its present rate for 3 more years - and at that time, very hard hit places like Las Vegas & Phoenix would see nominal values of 40-60 (1970's pricing).
Current futures market has us hit bottom at 160 - meaning David is being a bit generous saying we will hit 140-150 range, but not outrageous. Regardless, there is no inventory left to sell, there is not a major unemployment problem here, there is nothing that supports a nominal value of 100.
What I really meant was nominal per locale from peak, not on a national level from this exact point in time.
ReplyDeleteHow about I rephrase as follows: Prices will return to nominal 1997-98 levels.
Lets face it - the deflationary forces upon housing are severe. Inflation is affecting food and energy - however the overall inflation rate is irrelevant when it comes to the current booby prizes known as automobiles and housing. Excessive inventory and negative household balance sheets will bring these biggest ticket items out of la-la land and back to reality.
Nonpartisan - disagree again. If everyone is going to 1998 levels, places like DC need to go to an immediate, much more severe downturn, places like atlanta need to immediately turn to flat and places like detroit (already at 1995 levels) is going to have to shoot back up again.
ReplyDeleteThe fact of the matter is, they all started declining all at about the same time, I expect them all to quit declining all at the same time too - give or take 9 months to a year. In the end, there will be some winners (DC which will never sniff 1998 again) and some losers (Detroit which will take years to recover to 1998 prices).
Also, when say excessive inventory, clearly you arent in the DC market are you? Around this area, inventory is just about gone
http://www.virginiamls.com/charts/PrinceWilliam.htm
Around here, us bubble sitters are praying for more inventory to magically show up to keep the prices from rising.
"Also, when say excessive inventory, clearly you arent in the DC market are you? Around this area, inventory is just about gone"
ReplyDeleteWhere is it going? Cause sales are at an all time low. Places taken off the market until a few months later or next year doesnt really constitute as inventory is just about gone.
http://graphs.trulia.com/real_estate/Bethesda-Maryland/graph.png?version=152&width=600&height=200&type=qma_sales_volume&city=Bethesda&state=MD
http://graphs.trulia.com/real_estate/Potomac-Maryland/graph.png?version=152&width=600&height=200&type=qma_sales_volume&city=Potomac&state=MD
http://graphs.trulia.com/real_estate/Rockville-Maryland/graph.png?version=152&width=600&height=200&type=qma_sales_volume&city=Rockville&state=MD
http://graphs.trulia.com/real_estate/Washington-District_Of_Columbia/graph.png?version=152&width=600&height=200&type=qma_sales_volume&city=Washington&state=DC
"Where is it going? Cause sales are at an all time low. Places taken off the market until a few months later or next year doesnt really constitute as inventory is just about gone."
ReplyDeleteOh good God. Its the theory that never dies.
Back in 07 when inventory fell below 06 levels and sales were at an all time low, everyone said, "they arent selling - they will come back in a few months or next year"
Then in 08 when inventory fell below 07 & 06 levels and sales (again) were at an all time low, everyone (again) said, "they arent selling - they will come back in a few months or next year"
Now here we are in 09, inventory is again below 08, 07 & 06 levels and here it is again - you said "Places taken off the market until a few months later or next year doesnt really constitute as inventory is just about gone". Amazing how some things never die.
By the looks of things, you are in
Maryland. Fortunately for you, things there look to be well behind us in NOVA. In fact your inventory in MD looks alot like ours did in NOVA around this time last year. Still, consider this your word of advice from the future - YOUR INVENTORY AINT COMING BACK!!!!
By the way, look at what happened in NOVA last spring
ReplyDeletehttp://www.recharts.com/nova/nova.html
See how it started moving significantly lower starting in May 2008? As it turns out, that was the beginning of our steepest price declines. I dont think that MD has seen that yet, so your best deals are still to come!
At the same time though, watch the levels carefully. Over here in Nova, people are complaining about the lack of choice (and the flat prices). If you care about choice, try to be a little early than late. Good luck...
Well, time will tell. However, if other markets are in fact already in the mid-1990's range, then I feel even more strongly about other areas following suit. The "It's different here" philosophy is a pile of crap. I still plan on keeping my eye out for a home that I really really like, and then and only then low-balling to the max. I currently own a pre-bubble home that is nice and certainly adequate, and am way "above water" on it. I live well within my means, and will only "move up" when I get around a home at a pre-bubble price level. I can delay gratification indefinitely, thank goodness.I will just splurge a little more on vacation in the meantime!
ReplyDeleteAll,
ReplyDeletewhen considering home prices you have to account for the "overhang" of price that was extracted by the homedebtor via HELOC or other vehicle. Add this back to the home value adjustment and it can get scary fast:
2004 bought@200,000
2005 cashed out via whatever vehicle @75,000
home price 2006@ 350,000
home price 2009@ 180,000
180-75=105,000
it just got real bad!
"Oh good God. Its the theory that never dies."
ReplyDeleteIts not a theory, the proof is in the public records of sales. One sale every blue moon cant be the thing bringing inventory down. Tell us your theory of where these houses are going.
"Its not a theory, the proof is in the public records of sales. One sale every blue moon cant be the thing bringing inventory down. Tell us your theory of where these houses are going."
ReplyDeleteIts the same god damn thing that happens in every single downturn since the history of time. There gets to be a point at which inventory peaks. During that time, as sad and pathetic as the sales are it is enough to take down the standing inventory.
During these two simultaneous or near simultaneous events, some sellers say, im not listing til prices improve - and they wait - years and years and years.
To be sure, some of those "im not listing til prices improve" idiots capitulate, relist and sell. Still others continue to hold out.
As things improve, some of the holdouts re-list. Others think its way too early. This kind of microlevel decisionmaking takes place every day, and has been taking place every day since this thing started. And every day inventory keeps going down down down!!!
Look - this must come as a shock to you. You had a good idea and I just blew it out of the water. Guess what - 3 years ago, I was just like you - I thought this was a temporary pause in the inventory growth - back then I was like "just wait til 07, err 08, err 09...
After 3 years of being wrong on it, I have given up. If you are smart you will too. Inventory WILL NOT come back til things improve.
Chances are you are still in denial and you wont believe me. Still I want you to remember this conversation - I want to remember this in the weeks and months as the inventory keeps going down. Dont say you werent warned - HAVE A NICE DAY!!!
"Nonpartisan said...Well, time will tell. However, if other markets are in fact already in the mid-1990's range, then I feel even more strongly about other areas following suit. The "It's different here" philosophy is a pile of crap."
ReplyDeleteNonpartisan - the fact that you are resorting to memes "its different here" is just sad. Guess what, EVERY PLACE IS DIFFERENT. THe reason Detroit is down at 95 levels is because of demographics. You have a dying city - homes for 800,000 people (1950s population), and 500,000 residents. That is "unique" or some would say DIFFERENT about detroit.
Los Angeles - as much as I hate the place it DOES NOT have the same problems as detroit. If the problems in LA are DIFFERENT, why wont the final price differential be different?
Its like the "all homes must be 3X income" meme. On a national scale, that is absolutely true but there are huge DIFFERENCES in the country that get averaged together to make up 3X.
Imagine how in 1996 how the residents of Orange County were shocked and horrified when prices got to 4.6X income and then started going up again. Those that resorted to the 3X meme have been waiting for 13 years now - they will get lucky to see 4.6X again - let alone 3.0X
Bottom line is this, stop with all the god damn memes suggesting "its different here" isnt true. The fact of the matter is EVERY PLACE IS GOD DAMN DIFFERENT!
Sorry to take this out on you. Ive been waiting patiently since 2002 for this to burst - Ive pretty much made a second career out of studying this thing. Im very upset because I am not going to see the things I want to see in my area - ive accepted that.
Still, it drives me nuts when others who are still drinking the bubble koolaid hook line and sinker. I want to prevent others from experiencing the same pain I have for 7 years now. Some areas will burst in absurdly spectacular ways - others will not. I just hope for your sake, you are looking at one of the former and not the latter.
These price declines are so staggering, I'm inclined to think there may be something going on that is getting past the Case-Shiller methodology, particularly for the lower end homes where the reported price declines are even steeper than the averages suggest.
ReplyDeleteGiven the reading I've been doing, I can imagine a couple of candidates:
(a) If you follow through accounts from people actually buying foreclosures, which have really been dominating the closed transaction volume, you find that they often come with informational problems (e.g. you can't do inspections) plus remedial work liabilities (trashed by tenants, lawns dead, etc). Both of these could lead to properties which look like 'pairs' to the S&P database (similar property types, ages, square footage, etc.) transacting today in large numbers at prices substantially lower than a fully 'oranges-to-oranges' (both properties properly maintained and marketed) would have produced, even in this market.
(b) To the extent that housing demand has decreased substantially, we may now have a significant amount of housing stock built in recent years in locations so outlying and inconvenient to commute from that they really aren't worth much at all. Basically houses built in the wrong places altogether. This lack of value may have been overlooked during the boom, now but now appearing as a one-time permanent adjustment into the prices of outlying properties (e.g. around the edges of the SF Bay Area). While those particular houses may have in fact declined dramatically in value, so that one could argue that they should be in the Case-Shiller index, the counter-argument would be firstly that such properties basically didn't exist prior to about 2004, and so can't validly be in there on a 'comparable' basis. At the very least there may be a 'mix shift' issue, in that there are so many more outlying 'long commute' houses now in the aftermath of the boom, whose comparatively large price volatility obscures what may be less extreme price swings affecting the closer-in areas, which used to comprise the majority of the stock of housing.
Does anyone know whether S&P takes either of these into account when constructing the index?
"Nonpartisan said...Well, time will tell. However, if other markets are in fact already in the mid-1990's range, then I feel even more strongly about other areas following suit. The "It's different here" philosophy is a pile of crap."
ReplyDeleteSorry but I cant help myself. I still cant believe you went back to the "its different here" meme. In the DC area median household income grew 30% in the last 7 years. Pretty fantastic growth - maybe the highest in the nation.
By contrast, Detroit median household income went DOWN -1.3% over the last 7 years.
Let that sink in for a second
DC +30%
Detroit -1.3%
That sure looks DIFFERENT to me. Doesnt it to you?
If you agree that it is DIFFERENT, then why wouldnt we see DIFFERENT results in pricing? OR do you believe fundamentals dont matter?
Again, sorry im railing on you. Ive just had it with generation after generation of bubble sitters feeding memes to others without anyone really questioning what the hell any of it means. Its now coming up on Mid 2009 people - im not gonna let any of it go unchallenged anymore.
"Chances are you are still in denial and you wont believe me. Still I want you to remember this conversation"
ReplyDeleteGive me a name so that I can call you out 2 or 3 months later as prices keep dropping. Then again 6 to 8 months, and again next year as well. Believe me, I will remember this conversation, as I do Lances bullshit back in 06
"If you agree that it is DIFFERENT, then why wouldnt we see DIFFERENT results in pricing? OR do you believe fundamentals dont matter?"
ReplyDeleteFundamentals DO MATTER! Homes are still 5-8 times higher than the average annual salary around here. Fundamentally people cant afford and they prices have to drop. Can't see the forest for the trees eh?
nonpartisan said...
ReplyDelete"Well, time will tell. However, if other markets are in fact already in the mid-1990's range, then I feel even more strongly about other areas following suit."
The only metro area tracked by S&P/Case-Shiller that has fallen back to mid-1990's nominal levels is Detroit. Perhaps you haven't been paying attention to the news, but Detroit really does have some significant Detroit-specific issues.
"Give me a name so that I can call you out 2 or 3 months later as prices keep dropping. Then again 6 to 8 months, and again next year as well. Believe me, I will remember this conversation, as I do Lances bullshit back in 06"
ReplyDeleteGood god - wasnt this a conversation about inventory? If you recall I said your STEEPEST PRICE DECLINES are still coming. So what exactly are you going to call me out on?
I know you are embarassed because I called you out on the inventory issue. But hey your anonymous, I am too - nothing to be embarassed about. So spare me the face saving exercise by suggesting I think prices are moving higher when I said your STEEPEST PRICE DECLINES are still on the way.
"James said...Perhaps you haven't been paying attention to the news, but Detroit really does have some significant Detroit-specific issues."
ReplyDeleteBut James - you are saying "its different here"? BLASPHEMY :) Seriously, to suggest "no area is different" was perhaps the stupidest mantra in all of bubbledom. If the US govt packed up and moved to Topeka, KS, local prices would drop and extra 40% and Topeka home prices would explode even in the midst of the biggest bubble in history - sorry but it IS DIFFERENT EVERYWHERE.
Agree - prices will of course stay much higher in DC compared to Topeka and Detroit. But they are still going back to 1990's prices, respectively. Bell shaped curve will be completed.
ReplyDeleteNonpartisan - with all due respect, you just dont get it. Simply repeating the same thing doesnt show much of an acumen for debate. Perhaps you want to advance an argument for why areas that had massive income gains are no better off than areas that had income declines. You will find we are willing to entertain outside the box theories so long as they are intellectually honest.
ReplyDeleteThat said, repeating bubble mantras wont cut it my friend!
well, maybe because the FIRE economy is burning to the ground, and anyone with deep pockets (defined as >250K/year) is going to get them picked by Robama Hood. Bottom line is that these "massive income gains" carry as much weight as bubble mantra. The reset button has been pushed. There is no safe harbor, IMHO. Time will tell. I will bookmark this post and relook in May 2010. Good luck!
ReplyDelete...Robama Hood...And there you have it folks!
ReplyDeleteThat sucking sound you hear is the last thimbleful of "nonpartisan" credibility slurping down the drain.
Look out! Behind you! It's an Islamo-fascist!
:)
"Good god - wasnt this a conversation about inventory? If you recall I said your STEEPEST PRICE DECLINES are still coming."
ReplyDeleteIts always about price. Inventory and price are interlocked. When inventory is low, price goes up. Its supply and demand.
As far as inventory goes, as I said, people pull shit off the market and put it back on months later. Its a fact that cant be denied.
If we are in agreement that prices are going to tank for years to come, then hell I dont know what we are arguing about. Im glad you agree prices are going to tank at least 30%-50% more.
"As far as inventory goes, as I said, people pull shit off the market and put it back on months later. Its a fact that cant be denied."
ReplyDeleteOf course they do - thats been going on since the beginning of time. Of course it got worse during the bubble.
Heres the bugaboo. As the bubble unwinds more and more de-listers stay delisted over time fewer re-listers (along with new listers) come back. Thus even with ultra low sales, you will never see your inventory rise again (outside of seasonal patterns). Count on it.
"As the bubble unwinds more and more de-listers stay delisted over time fewer re-listers....Thus even with ultra low sales, you will never see your inventory rise again (outside of seasonal patterns). Count on it."
ReplyDeleteI dont agree that people wont relist their homes. I also believe when the Alt-A hits places like potomac and bethesda all hell breaks loose in montgomery county.
but fair enough on your theory that nobody will ever sell their home, as long as we agree prices are going to keep fucking tanking in a big way, I dont care if the people who pull their house off the market put it back on or not.
"I dont agree that people wont relist their homes. I also believe when the Alt-A hits places like potomac and bethesda all hell breaks loose in montgomery county."
ReplyDeleteAlt A is not an "event". Alt A is something that started in earnest about 6 months ago, and grows and becomes worse every day and will continue to grow worse over time. Alt A (which is hitting NOVA equally as hard) is growing in NOVA too - yet despite this inventory keeps going down down down.
http://www.recharts.com/nova/nova.html
"but fair enough on your theory that nobody will ever sell their home, as long as we agree prices are going to keep fucking tanking in a big way, I dont care if the people who pull their house off the market put it back on or not."
You shouldnt care. All you should care about is price and its a near certainty that your biggest price declines are ahead of you. In some sort of choose or die situation id be willing to stake my oldest kid's life on it. If the eastern side of the potomac is similar to the western side (and I bet it is), inventory and prices will decline near simultaneously -- the steeper the inventory decline, the steeper the price decline.
That said - you shouldnt just blindly believe in things that dont appear likely - and one of them is your inventory coming back.
"That said - you shouldnt just blindly believe in things that dont appear likely - and one of them is your inventory coming back."
ReplyDeleteWhy would you say that inventory doesnt appear likely? If nobody is selling their home, what are they going to do with it? Give it away to someone instead of putting it on the market?
By the way, do you have a nice line graph showing montgomery county inventory year to year?
´Agree - prices will of course stay much higher in DC compared to Topeka and Detroit. But they are still going back to 1990's prices, respectively. Bell shaped curve will be completed.´
ReplyDeleteQuoting this because I believe houses in the District of Columbia are always gong to be a little more expensive than usual