Average U.S. home prices increased 12.95 percent from the fourth quarter of 2004 through the fourth quarter of 2005. Appreciation for the most recent quarter was 2.86 percent, or an annualized rate of 11.4 percent. The increase during 2005 is similar to the revised increase of 12.55 percent for the year ended with the third quarter of 2005, showing no evidence of a slowdown.
It will be difficult for us bubbleheads to claim that the numbers lend weight to our view of the housing market. This is a major piece of evidence that will get the housing cheerleaders all riled up. Get ready! We have another battle! We will win the war but this battle seems lost.
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We will win the war bc the fundamentals are on our side. The prices in the bubble markets simply are too far removed from fundamentals.
ReplyDeleteThis data states that in 2005 prices of the homes continued double digit growth. That's not inconsistent with the data showing that the market started slowing (inventories increasing, etc.). It all depends on when you think the slowdown started occurring. Remember, that 2005 was quite a frenzied year, especially during the spring and summer months.
ReplyDeleteeven if you look at just the quarter numbers for 4Q 2005 there is still plenty of ammunition for the housing cheerleaders.
ReplyDeleteIt's really pretty simple. 4th quarter was up YOY because of the extreme appreciation of the first two quarters. But take a look at July 2005 compared to January 2006. What a difference 6 months make. It will take a full year of flat to negative appreciation before it starts fully reflecting in the YOY figures. The YOY appreciation will continue to drop off between now and summer, and by the time summer gets here, I expect YOY appreciation to be in the negative.
ReplyDeletesteinravnik,
ReplyDelete"4th quarter was up YOY because of the extreme appreciation of the first two quarters. But take a look at July 2005 compared to January 2006"
This is all true. However, the OFHEO numbers quarter to quarter and year to year. The 4Q 2005 quarter numbers are generally higher in most place then the 3Q 2005. No this is not a seasonal effect.
We need to keep the numbers in context. Remember that sales numbers are LAGGING indicators. That means that if the house sale closed in December that contract was signed in Oct/Nov. The house was probably listed on the market in Aug/Sep. The LEADING indicators for the housing market are PENDING Sales and INVENTORIES. I'm guessing that the housing market prices peaked in Aug/Sep (or maybe July), but we won't really see the declines in prices in the report until Q1 or Q2 06 at the earliest. We need to keep getting out the information about inventories and the HUGE drop in the number of sales. Also, keep in mind that we also need to keep looking at the numbers as YOY, not month on month. There are natural seasonal fluctuations involved. (Of course, Jan. was the 8th warmest month on record in the US, which should have helped the housing market.)
ReplyDeleteI will work on a new index showing not only price changes, but also inventory changes and seasonal fluctuations.
We fight the battle using their weapon: housing is local.
ReplyDeleteCheck my ip when I say this David... OFEO only looks at data from Fannie Mae and Freddie Mac, which by law can't give a loan over $397k. As such the report tells you about the bottom of the of the market and nothing about the top. Furthermore the loan limit means that most sales in this area are excluded from the report.
ReplyDeleteHere's how you set the cheerleaders straight. The Q4 house price data is old news for 2 reasons, both of which have been mentioned in previous posts.
ReplyDelete1) house prices continue to rise right through the peak, while the number of houses sold falls sharply and inventory rises. As the poster said, house prices are in a lagging indicator of the market's direction. The buyers who bought in Q4 are "the last fools in the market" -- there are no more buyers willing to pay at that level. which brings us to point #..
2) overwhelming data shows that the market has stalled in Jan and Feb. Number of sales is down 30-50% yr/yr in many markets. Inventories are at 10-yr highs in many markets. Therefore, the market has turned sharply in the last 2 months; the OFEO data is already obsolete.