Updated graph: Washington, DC area housing prices

Here is an update of my Washington, DC metro area house price graph, showing almost 22 years of DC area house prices.

Again, the vast majority of houses in the DC area are in the suburbs. Housing prices in the suburbs have been falling faster than in DC, itself.

Free money for home buyers

Current homeowners are not eligible:

If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid. ...

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund. ...

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card. Williams points out that buyers should beware that they won't actually receive any refund for a home purchased this year until after they file their 2009 income taxes in April 2010.

And he argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway.

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back — the suspicion that prices are going to keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."

DC metro area home prices down 19% YoY

S&P/Case-Shiller released its November home price index numbers. Washington, DC metro area home prices fell 2.4% month-over-month, 19% over the past year, and 28% since the market peak in May 2006.

According to the Bureau of Labor Statistics, inflation has pretty much vanished. (Thank falling energy prices.) This means nominal and real house price decline numbers are roughly the same over the past year.

S&P/Case-Shiller: Home prices fell in November

No surprise: Home prices fell again in November.

An index of home prices in 20 major metropolitan areas fell at a record annual pace in November, to levels not seen since 2004, according to a report released Tuesday.

The S&P Case-Shiller Home Price Index, a sampling of 20 cities from across the nation, fell a record 18.2% over the 12 months ended Nov. 30. That brought the index to its lowest point since February 2004. From its peak in mid-2006, the index has plunged a whopping 25.1%.

Eleven of the 20 cities showed record declines, and the 12-month price drop for 14 of the cities was a double-digit percentage.

"The freefall in residential real estate continued through November 2008," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's, in a prepared statement. He said the 20-city index has fallen for every month since August 2006, a total of 28 consecutive months.

Keep in mind that this index is S&P's "20 city" index, not its national index (which only gets released quarterly). The 20 city index is not an accurate measure of the nation as a whole because—duh!—it only tracks 20 cities. However, it does give an indication of what the national trend is like.

December home sales down 3.5% YoY

According to National Association of Realtors data, December sales were down slightly year-over-year:

Sales in December were down 3.5% from the previous December.

About 45% of the transactions in December were considered distress sales, either a short sale or a home in foreclosure, the Realtors said. Many foreclosure sales are handled outside the Realtors' system and are not reported by the Realtors.

"Rising foreclosures and the large inventory overhang continue to exert downward pressure on prices," wrote Anna Piretti, an economist for BNP Paribas. ...

The median sales price fell to $175,400 in December, down a record 15.3% compared with a year earlier. ...

The price decline is likely the largest since the Great Depression in the 1930s, according to Lawrence Yun, chief economist for the trade group.

The Realtors also reported that sales were up 6.5% month over month, and sales for all of 2008 were down 13.1% compared with 2007.

I believe that year-over-year numbers are better than month-over-month numbers at showing the sustained trend, because month-over-month numbers are too volatile. Also, the Realtors' data for price changes are not very reliable, because they don't control for the changing mix of houses sold. The S&P/Case-Shiller home price indices (which should get released today) are more reliable for measuring price changes.

MLS underestimates the number of foreclosures

The multiple listing service underestimates the number of foreclosures. This means the MLS also underestimates housing inventory numbers.

There is probably even more excess housing inventory gumming up the market than current statistics indicate, thanks to a wave of foreclosures that has yet to hit the market.

The problem: Many foreclosed homes and other distressed properties that are now owned by banks have yet to be listed for sale. The volume of this so-called 'ghost inventory' could be substantial enough to depress already steeply falling prices when it does go on the market. ...

RealtyTrac, the online marketer of foreclosed properties, recently discovered that it has far more foreclosed properties listed in its database, which the company compiles using courthouse records, than there are listed in the multiple listing services (MLS) maintained by real estate agents. ...

The National Association of Realtors calculates official housing inventory statistics using data from the multiple listing services. By that measure, there were 4.2 million existing homes for sale in November, an 11.2-month supply at the current sales pace, up from a 10.3-month supply in October.

But now it seems quite possible that these figures, which are already at record highs, are underestimating the situation. And if that's the case, it could take much longer for the housing market recovery than analysts currently expect.

Until supply can be brought down to a more normalized level of six to seven months, home prices will continue to come under pressure, according to [National Association of Realtors chief economist Lawrence] Yun.

"It could be a worse problem than we think," he said.

I'd like to commend Lawrence Yun for his honesty on this matter. I have nothing against Lawrence Yun personally, or the organization he works for. What I dislike is dishonesty. When he is honest about the outlook for housing, I will treat him with respect.

Housing starts experienced worst year ever

The decline in existing home prices accelerated in November

From CNN Money:

A new government report reveals declines that are steeper than usual — even for this market. ...

The Federal Housing Finance Agency (FHFA) reported that home prices fell a record 1.8% for the month, compared with October... That follows losses of 1.2% and 1.1% in the two previous months. For the 12 months ended November 30, prices fell 8.7%, which was the largest 12-month price drop ever for the 17-year-old index.

"We've been seeing an acceleration in the rate of housing-market decline," said Mike Moran, a real estate analyst with Daiwa Securities. ...

"The news in the housing markets has just been dreadful," said Moran.

That bad news includes foreclosure rates that are still on the rise, record-low homebuilder sentiment and reports of modified mortgages quickly going bad again.

Things keep getting worse for homebuilders

Housing starts continue to fall:

The National Association of Home Builders released its economic outlook yesterday at the International Builders Show in Las Vegas. Single-family-housing starts, which fell 40% to 617,000 in 2007, are expected to drop to about 441,000 this year — the lowest since records have been kept. That would be a nearly 75% drop from the industry’s highwater mark of 1.7 million single-family starts in 2005.

Builders are not only facing a large overhang of home inventory, there’s also the problem of the credit crunch. “Economists said lending remains so tight that many consumers won’t be able to take advantage of declining housing prices and mortgage rates,” Jim Carlton reports in today’s Journal.

Also, homebuilder sentiment has reached a new low:

U.S. homebuilder sentiment sank to a new low in January as concerns about the faltering economy and reluctant homebuyers hurt confidence in the market for newly built single-family homes, an industry group said on Wednesday.

The National Association of Home Builders said its preliminary NAHB/Wells Fargo Housing Market Index was 8 in January, down from 9 in December. That is the lowest level on record since the gauge was launched in January 1985.

Readings below 50 indicate more builders view market conditions as poor than favorable.

Foreclosed homes are selling briskly, though:

Foreclosures are the place to be. Low-priced, bank-owned homes are selling briskly, says market research firm MDA DataQuick. Newly-built homes, on the other hand, are sitting on the sidelines.

Job Losses & Housing Prices

In 2008, the US lost 2.6 million jobs according to the Bureau of Labor Statistics. In the last two months of the year the job losses really accelerated (see chart below).

2008 Job Losses by Month. (NY Times Chart)

It is well known among economists that large job losses put stong downward pressure on home prices. As job losses continue to be high in the first quarter of 2009, expect job losses to play an increasingly large role in further reducing home prices.

Most popular relocation cities

CNBC lists the most popular cities to relocate to:

Nearly 34 million people moved in 2007, according to the U.S. Census. But where are they going? ... These 10 cities drew the most interest.

1. Las Vegas, NV
   
2. Denver, CO
   
3. Charlotte, NC
   
4. Phoenix/Mesa, AZ
5. Portland, OR
   
6. Seattle, WA
   
7. Orlando, FL
   
8. Washington, DC
   
9. Atlanta, GA
   
10. Tampa/St. Petersburg, FL
    

Circuit City is being liquidated immediately.

Circuit City is being liquidated immediately. If it is still open this weekend, you may want to look for a going out of business sale. Anyone with Circuit City gift cards should use them immediately. Any product returns should be done immediately.

Update: I went to Circuit City on Saturday. The discounts are lame. You can get better discounts from Amazon.com.

Update #2: CNN Money has a warning about liquidation sales. Here's an interesting quote from the article: "It's almost a scam and there's nothing illegal about it."

Barry Ritholtz tears into the National Association of Realtors

Barry Ritholtz, who has one of the top ten econ blogs on the internet, recently tore into NAR:

Of all the various parties who contributed to the boom and bust in housing and credit, none have escaped more unscathed than the National Association of Realtors, and their former Baghdad-Bob-in-Chief, David Lereah.

The NAR turned a blind eye to fraud amongst realtors in terms of referrals to corrupt appraisers and mortgage brokers. They constantly cheerleaded prices, despite evidence to the contrary. For 3 years, they have been forecasting 2nd half price recoveries, dissuading realism amongst home sellers. They continually spun data, presented misleading commentary, and otherwise engaged in behavior that could only be characterized as sleazy.

I find EVERYTHING out of the NAR to be suspect, tainted and generally worthless. The NAR Housing Affordability Index is essentially worthless; from 1989 - 2009, the NAR showed housing as “Unaffordable” for just one month.

It is especially notable that mainstream journalists, while accusing many on Wall Street and in government of wrongdoing, has let the National Association of Realtors off the hook. I suspect the journalists are just protecting what they consider a valuable news source. "Don't bite the hand that feeds you," as the saying goes.

An aerial photo of David Lereah's house

As long as I'm on a David Lereah kick, spurred by the recent Wall Street Journal article about him, here's a satellite photo of his house (which he bought exactly seven years ago today). As the article says, he works at home nowadays.

The value of David Lereah's home

Here is the value of David Lereah's home, over the past five years. The green line represents the value of his home. The yellow line represents the value of the median home in his zip code.

Links Updated

The links on the Bubble Meter Blog have been updated. Sites which have not been updated in a long time have been removed.

David Lereah profiled in WSJ

Former National Association of Realtors chief economist David Lereah is profiled in The Wall Street Journal. Some highlights:

Once one of the world's most-visible housing experts, Mr. Lereah is disconnected from his old life. The former chief economist for the National Association of Realtors says the group's top executives won't return his phone calls. He says he wasn't invited to the association's 100th birthday bash last May. ...

Mr. Lereah continued to make rosy statements amid growing signs of a housing downturn -- like this declaration in January 2007: "It appears we have established a bottom." ...

Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said, looking out his window to his tree-filled yard in this Washington suburb. Mr. Lereah now works at home, trying to rebuild his career and saddled with a sagging portfolio of real-estate investments.

A spokesman for NAR says Mr. Lereah used the same kind of forecasts in his book, which wasn't an NAR publication. ...

Soon, mainstream economists and the press were calling him out. "I thought it was criminal that he kept saying we'd reached bottom," says Ivy Zelman, former housing-market analyst at Credit Suisse and now head of her own housing-sector research firm. She says she dubbed Mr. Lereah "Mr. Liar-eah."

Mr. Lereah says he was starting to worry about the housing market and tried to tone down his optimistic comments.... He says his critics nevertheless "became vicious."

Mr. Lereah admits to one mistake: believing there would be no national housing crash. "I have to take the blame for that," he says. "I never thought it would be as bad as this." ...

Mr. Lereah's real-estate portfolio has taken a hit. He says his 3,068-square-foot five-bedroom, 5½-bathroom brick house has lost about 20% of its value in the past two years. ... His condos are down, too. He now says housing prices won't recover for some time.

The article also says he likes to drive to Dunkin' Donuts or McDonald's every morning. The Dunkin' Donuts shop closest to his home is right across the street from GMU's main campus. If memory serves me correctly, there's a McDonald's in the same shopping center.

For more on David Lereah, read David Lereah Watch.

Short Sale Watch

This 6 bed/3.5 bath home in Bristow, Virginia is for sale for $225,000, which is about $145,000 less than Zillow's estimated value. It last sold for $595,000 in 2005. According to Zillow, the monthly payments for this house would only be $1,200 per month (assuming a 20% down payment, good credit, and a 30-year fixed mortgage), which is less than my current rent. The claimed square footage is 3,000 sqft. The only downside: The commute to DC will take about an hour, assuming good traffic.

For anyone interested in buying this short sale, the listing website is here. Photos of the interior can be seen here.

Zillow: White House worth $308 million

Now here's a house worth every penny:

Zillow estimated that the White House — if it was put on the market as a residence — would be valued at about $308 million. ...

The Zestimate took into account 1600 Pennsylvania Avenue’s physical attributes, recent comparable sales and local market trends. The 55,000-square-foot White House has 132 rooms, 35 bathrooms, 16 bedrooms, 3 kitchens, and 18 acres of land in downtown Washington, the Web site said.

“Zillow’s statisticians deemed the White House the most historic home in America and applied a maximum historical premium to their models to determine a Zestimate value today of $308,058,000,” the Web site said.

Just one question: What the heck did they use as "comparable sales"?

Homebuilder Lennar accused of fraud

Lennar's stock fell 20% on Friday, due to the fraud allegations.

Hat tip: The Hot Property blog

Rents falling

The Los Angeles Times reports that rents are falling both in Los Angeles and nationwide:

After rising for several years, rents in the Los Angeles area are declining because of the economic recession and depressed home prices, researchers, real estate agents and property managers say.

The lower local rents match a national trend, according to a report released Wednesday showing apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008. Softening rents add another obstacle to a housing market recovery, economists say, because tenants with low rent payments feel less urgency to buy a home. ...

Property owners and real estate agents say the supply of rental units has climbed in the last year. Overbuilding during the real estate boom added vacant units to the rental pool, and some home sellers discouraged by the moribund real estate market are renting their houses or condominium units rather than trying to sell. Foreclosures add both supply and demand to the rental market, as foreclosed homes become rentals and former owners seek places to rent. ...

The recession will probably pull rents even lower, Davidoff said, further delaying a real estate recovery. "There's weakening demand for all types of housing due to the economic downturn," he said.

Hat tip: Calculated Risk

It's a bad time to buy a home

Analyst warns against buying homes now:

Fox-Pitt Kelton home-builder analyst Robert Stevenson said Wednesday he thinks this year will turn out to be "a bad time to buy a home" as the U.S. economy loses more jobs, especially if buyers don't plan on staying in the house for at least several years.

"While some suggest that now is great time to buy a home given low mortgage rates and falling home prices, we believe that for most homebuyers, the opposite is true," Stevenson said in a report to clients. ...

"Buyers who lose their jobs or who stay in their homes for less than seven years stand to incur substantial losses as home prices decline further in 2009 and the U.S. experiences more moderate home-price appreciation going forward," Fox-Pitt said. "We believe too few buyers do the simple break-even math before sinking their life savings into a house." ...

National home prices were down 23% from their July 2006 peak through October, and Stevenson at Fox-Pitt predicted an incremental 20% drop in prices before bottoming, a peak-to-trough decline of roughly 40%.

"While a drop of 40% seems absurdly high ... it would only put home prices back to where they were at the beginning of 2002," Stevenson said. ...

The analyst's bearish outlook is based largely on escalating unemployment, and jobs are the lifeblood of the housing market.

"As if 2008 weren't bad enough for housing — given the mounting foreclosures, falling home prices, and a tightening credit market — millions more Americans are now in danger of losing their jobs," said Stevenson at Fox-Pitt. "As unemployment heads towards 8%, we expect foreclosures to spike, taking home prices down materially."

Lawrence Yun Pleads for Real Estate Stimulus

The real estate market has declined dramatically in the last couple of years. With Washington, bailing out various industries, the real estate industry has lined up at the trough, pleading for assistance from Washington.

"A real estate-focused stimulus plan is urgently needed," Lawrence Yun, the trade group's chief economist, said in a statement. (AP 1/6/09)

There is already too much investment and too many subsidies of the real estate market. The government should not approve any real estate focused stimulus plan. The real estate industry has been discredited and cannot be trusted. Mr. Yun should be ashamed of his shameless shilling for the economic pariahs that are the National Association of Realtors.

For more on the Mr. Yun go to Lawrence Yun Watch

Bruce Bartlett on the housing bubble debate

Bruce Bartlett gives an interesting timeline of the debate over the housing bubble. He ends with this thought:

There were many economists who did see it coming, but there were many others of equal or greater prominence and authority who repeatedly insisted that there was nothing to worry about. ...

Unfortunately, it is in the nature of economic and financial forecasting that being right too soon is insignificantly different from just being wrong. And forecasters that are wrong when most of their community is also wrong never suffer for it. The trick is to be right just a little bit sooner than everyone else—but only a little bit.

Homebuilder to be Obama inaugural guest

From an email from Michelle Obama:

Last week, the Presidential Inaugural Committee announced that we're bringing 10 supporters to Washington, DC for several days of Inaugural celebrations.

With the deadline coming up on Thursday, I'm pleased to announce the selection of the first grassroots supporter who will be attending the Inauguration.

Cynthia Russell from Newberry, Florida, and her guest will attend the welcome ceremony, Barack's swearing-in, the Inaugural Parade, and our Neighborhood Inaugural Ball.

Cynthia is a builder and has been feeling the impact of the recent economic crunch. She wrote:

"I'm a single woman who has been building homes for over 18 years. I've supported myself and have been able to help out my mother from time to time. Now I find myself wondering how much longer I can hold on and be able to pay my bills and keep the doors open for business. Barack gives me hope. Hope that 2009 will truly bring change to Americans who find themselves in this mess with me."

I bet Cynthia wasn't complaining when homebuilders were raking in cash during the first half of this decade.

Update: Keep in mind that Cynthia Russell is not a "construction worker." She is a "builder" which apparently means she owns her own homebuilding business and her own home staging business, plus she "is also the managing partner of Magnolia Manor Apartments, LLC (a 40 unit complex that was built by Emerald Ventures)." It's truly amazing to see the poor, suffering people we're supposed to feel sorry for. I think she needs a bailout. —Hat tip to Chuck Ponzi

The change in DC-area home prices

Source.

Clarification: If you notice, on the left side of the slide it says "annual change" and covers seven years (2000-2006). The middle and right says "annual change by month" and covers 2007 and 2008. When I posted the slide, I actually didn't notice that the left side isn't monthly data. In retrospect, it is a confusing graph. Sorry.

Recession hitting Washington, D.C. hard

Conventional wisdom states that the Washington, D.C. metro area is insulated from the recession because of all the government jobs here. Well, according to this table, the District of Columbia is experiencing a higher than average increase in the unemployment rate.

D.C. November 2007 unemployment: 5.7%
D.C. November 2008 unemployment: 8.0%
D.C. Increase in unemployment: +2.3%

That 2.3% increase in unemployment is the 12th worst in the nation, counting all 50 states plus D.C.

For those who insist on distinguishing between D.C. proper and the broader D.C. metro area, the unemployment rate statistics are for D.C. proper.

Low interest rates not stimulating home buying

Via Diana Olick:

Two weeks ago, thanks to more promises from the federal government that it would buy more mortgage-backed securities, mortgage rates plunged to the point where the rate on the 30-year fixed looked like a teaser rate on a subprime circa 2006. It wasn’t quite the 4.5 percent that some housing gurus are calling for, but it was close enough.

One week later, no surprise, the weekly applications survey from the Mortgage Bankers Association showed a surge with volume up 48 percent from the week before and up 124.6 percent from the same week a year ago. Great news, right? Only if you’re into refis.

The refinance share of mortgage activity increased to 83 percent of total applications, from 77 percent the week before and 53 percent a year ago. So that means that the vast majority of people taking advantage of these low low rates are not actually buying a new home, just saving money on their current home. That’s helpful to those who might have been in danger of default, but it isn’t exactly a jumpstart to home buying.

So suffice it to say, it’s going to take more than low interest rates to get people buying enough homes to add more weight to any kind of recovery.

The Twelve Days of Bailouts

I was gone for Christmas, so I missed this. I hope you enjoy it anyway.

WSJ discusses October home price data