Sunday, May 31, 2009

Saturday, May 30, 2009

Re/Max agent junk mail

I just got this in the mail. Click on the image to read the full-sized version.

This advertisement is so over-the-top that I'm not going to post the other side, which has the contact info.

Friday, May 29, 2009

Cities below 2000 inflation-adjusted levels

Eleven of the twenty metro areas tracked by S&P/Case-Shiller are now below their 2000 inflation-adjusted levels.

Since 2000 the U.S. has had 23% cumulative inflation. Metro areas tracked by Case-Shiller that are up less than 23% are:
  • Atlanta, up 5%
  • Charlotte, up 19%
  • Chicago, up 22%
  • Cleveland, down 3%
  • Dallas, up 12%
  • Denver, up 20%
  • Detroit, down 29%
  • Las Vegas, up 16%
  • Minneapolis, up 9%
  • Phoenix, up 7%
  • San Francisco, up 18%
Most but not all of these cities are still falling. The number for San Francisco is a bit misleading, though, since much of its bubble activity occurred before 2000.

At the opposite end of the spectrum, New York is up the most (73%), followed by Washington, D.C. (66%) and Los Angeles (61%).

From 2000 to the bubble peak, Miami had had the greatest gains (179%), followed by Los Angeles (174%) and Washington, D.C. (151%).

Thursday, May 28, 2009

Case Shiller Price Index: March 2009

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.

Wednesday, May 27, 2009

Home prices plunging even faster

According to the S&P/Case-Shiller national home price index, the home price decline is still accelerating:
The home price slide accelerated during the first three months of 2009, according to a report issued Tuesday.

The S&P/Case-Shiller National Home Price index, a bellwether of real-estate market direction, plunged a record 19.1% during the quarter compared with the first three months of 2008. That followed an 18.2% drop last quarter. ...

The ugly report was somewhat unexpected, according to Mike Larson, a real estate analyst for Weiss Research.

"The market was anticipating better results," he said. "There had been some signs of increased sales in post-bubble markets."

But that sales increase has not translated into higher prices. Bargain hunting — bottom fishing really — for foreclosures and other distressed properties has driven sales volume up while further depressing prices.

The foreclosure sales, which many appraisers used to ignore when they evaluated home prices because they represented outliers rather than typical sales, now have to be accounted for.

"These used to be anomalies," said Larson. "Now, when sales are dominated by foreclosures, where they represent 50% or more of [transactions], they are the market."
It is amazing that pundits are expecting that a bottom is right around the corner when price declines are falling at a 19% annual rate. House price declines rarely turn on a dime. In fact, I doubt it has ever happened in recorded history anywhere in the world. You should expect the rate of decline to start slowing at about the half-way point, but right now price declines are still accelerating.

Pundits have been consistently claiming that a bottom was right around the corner ever since late 2005. Go back and check Ben Bernanke's statements. He first claimed the market was about to hit bottom two or three years ago.

Tuesday, May 26, 2009

Happy Birthday

The Bubble Meter blog turned four years old yesterday. It was created by David Jackson several months before the bubble peak.

The Washington Post examines the local housing market

According to The Washington Post, 62% of Washington, D.C. area home sellers are selling at a loss:
In the past six months, most Washington area sellers have lost money on houses they purchased since prices started climbing in 2000, according to a Washington Post analysis of residential sales. In the first three months of this year, 62 percent of local home sellers accepted less than they paid for their homes, in part because aggressively priced foreclosures have dragged down prices around the region.

While the drop is painful for sellers, experts say it is a necessary part of getting past the excesses of the boom years. This region experienced one of the sharpest run-ups in home prices in the nation. Those prices must be brought down in order for buyers and sellers to deal with each other on more equal footing, as they had for decades before the boom. ...

But as long as distress sales continue to dominate, the market will not bounce back to normal, said Nicolas P. Retsinas, director of Harvard University's center for housing studies. "The norm requires that a preponderance of transactions take place between willing buyers and sellers, not sellers who would take any price to unload a property." ...

Home prices have held steady in the District, according to The Post analysis. In the Virginia and Maryland suburbs, prices for single-family homes are down to where they were five years ago. In Prince William and Loudoun counties, a flood of foreclosures has pushed prices so low that bargain hunters have flocked there in recent months, helping to boost sales.

But while in past slumps a surge in sales has signaled the start of a rebound, this downturn is unlike any in recent times and it's premature to call a recovery, said Barry Merchant, senior housing policy analyst at the Virginia Housing Development Authority.

The encouraging signs have been offset by more troublesome ones, he said. After tapering off for a few months, foreclosures in Northern Virginia are starting to creep up again and may keep climbing now that several lenders have lifted foreclosure moratoriums.

Meanwhile, the year-over-year sales increases of the past few months are petering out in some Virginia suburbs, suggesting that interest in the fire-sale prices may have peaked, Merchant said. In April, Loudoun sales declined 12.5 percent from a year earlier.

Friday, May 22, 2009

Radar Logic: Slowing price declines

According to Radar Logic, home price declines are slowing—but not in DC:
There’s more evidence this morning that the house-price free fall has slowed: A composite index of 25 metro markets across the country declined by just 0.3% in March from the previous month, matching a similar January-to-February decline, according to a monthly report by Radar Logic. ...

While the numbers don’t show a bottom in housing, the seasonal strength in pricing shows that some level of stability has returned. ...

Washington, D.C., posted the largest monthly decline, with prices falling 7.5% on a price-per-square foot basis.

Boston led the 25 cities in price increases in March, with a 6% monthly gain, followed by Denver, where prices jumped 5.7%.
These are month-to-month numbers, which tend to be unreliable. Prices normally increase during the spring and fall in autumn, for example.

According to the Case-Shiller numbers, inflation-adjusted housing prices since 1997 have been making a very nice bell shaped curve. As we get closer to the bottom, price declines should start slowing. I would have expected the inflection point to be at the half-way mark, but by my estimates the nation as a whole is about two-thirds of the way down.

RealtyTrac: 500,000 REOs being held off the market

From BusinessWeek:
Buyers looking to purchase foreclosures should still have plenty of opportunities. Only 30% of bank-owned properties are listed on the multiple listing services, says Rick Sharga, senior vice president at foreclosure listing firm RealtyTrac. He figures banks still own as many as 500,000 properties that they want to sell but haven't put on the market.

A home many not be listed because the bank is wrestling with title, repair or owner right of redemption issues. (Several states such as Michigan and Wisconsin give the previous owners the chance to buy back a home that's been foreclosed on). Banks may also be holding houses off the market because selling them now would lower prices even further. Foreclosures typically sell at a 31% discount to similar homes whose owners aren’t in distress. Listing all those homes now, Sharga says, “would have a devastating impact on inventory and pricing." ...

“Foreclosures are the heart of the real estate crisis and the key to the recovery,” says Pete Flint, co-founder and CEO of Trulia. All home sellers have to compete with the bank-owned properties on the market. As a result, “homeowners are absolutely pricing to sell,” Flint says. “Nationally, one quarter of all homes have cut their listing price at lease once in the past year.”

Thursday, May 21, 2009

Home Depot CEO: housing market optimism is premature

From the Financial Times:
Growing optimism over the US housing market may be premature, a leading retailer warned on Tuesday.

Frank Blake, chief executive of Home Depot, said housing market signals were still mixed.

"We are concerned about the accelerating rates of foreclosures, particularly in the western part of the country," he said, noting that one out of every 54 homes in California was in foreclosure.

Mr Blake said that a slowing foreclosure rate in California during the fourth quarter had led to an improvement in regional store sales but the trend had then reversed as foreclosure rates rose again in the first quarter.

The shift "provides a cautionary note on signalling a recovery prematurely", he said. "Before we see real improvement we believe we need to see sustainable deceleration in foreclosures."

There were 342,038 foreclosure filings in April, according to data from RealtyTrac, an increase of 1 per cent from the previous month and up 32 per cent from last year.

Graph: housing starts and new home sales

From Calculated Risk:

Tuesday, May 19, 2009

'Severe' weaknesses for Fannie and Freddie

Shocker! Fannie Mae and Freddie Mac are still in trouble:
Fannie Mae and Freddie Mac, charged with helping lead the nation out of its housing crisis, are facing "critical" financial problems, federal regulators said Monday.

The companies suffer from severe financial, operational and compliance weaknesses, the Federal Housing Finance Agency said a report to Congress detailing its annual examinations of the firms. Taken over by the government in September, Fannie and Freddie are not able to operate without federal assistance. ...

Fannie and Freddie play a vital role in the national housing market, accounting for a combined share of 73% of mortgage originations in the second half of 2008. They also serve central roles in the Obama administration's foreclosure prevention plan.
The Obama administration is forcing these companies to issue the vast majority of this country's new mortgages—at some of the lowest interest rates in history—while housing prices are still falling. I doubt this is good for Fannie and Freddie's financial health in the long run. I expect these companies to keep sucking up your tax dollars as President Obama pats himself on the back for "doing something about the housing problem."

High-end housing getting hit

Calculated Risk quotes the San Francisco Chronicle:
High-end properties are increasingly coming under the sort of pressure once reserved for moderate homes. In fact, as slowing price declines fuel hope that the real estate bottom is near, other signs suggest the worst is on its way for the region's upscale market. ...

[T]he type of person who might have been looking to buy a more expensive house in the past today often doesn't have the necessary equity appreciation to consider a million-dollar home.

Transatlantic housing bubbles

Thanks to News N Economics for this graph. It shows housing bubbles in several European countries compared to the U.S. Notice that the bubbles in Ireland, Spain, and the U.K. dwarf ours. This graph also suggests we are most of the way down. (The graph appears to be inflation-adjusted.)

Friday, May 15, 2009

CNN discussion on housing


Their graphs appear to be using prices from the National Association of Realtors. $174,900 was the median home price in March, according to the Realtors. The most recent (April) median home price, released by NAR earlier this week, is $169,000.

It's funny that these guys are in the "news" business, yet they completely overlooked the new data released two days before their discussion.

Wednesday, May 13, 2009

NAR: Home prices and sales decline again

The median price of a home in the U.S. fell to $169,000, according to the National Association of Realtors.

By comparison, the median U.S. household income in 2007 was $50,233. This suggests a price-to-income ratio of about 3.36.
The steep slide in home price accelerated at a record pace during the first three months of 2009, according to an industry report issued Tuesday.

The national median home price of single family homes sold during the first quarter fell 13.8% to $169,000 year over year, and 6.2% compared with the last quarter 2008, according to the National Association of Realtors (NAR). That was the largest year-over-year decline in the 30-year history of the report. ...

Sales volume was weak as well. Homes sold at a 4.59 million annualized rate during the quarter, off 3.2% from the last three months of 2008 and down 6.8% from first quarter 2008. ...

"Where prices are down the sharpest, sales volume is up the most," said Mike Larson, a real estate analyst for Weiss Research. "In the post-bubble markets, we've seen more rationality come in." ...

Despite the increased affordability, Larson does not forecast a return to a normal market until the end of 2010. Until then, he said, "Buyers will continue to have the upper hand."
So, after two months of Realtor and news media spin claiming that sales were up, we find that sales for the entire quarter were actually down.

Tuesday, May 12, 2009

Postal Worker Steals Stamps To Pay Mortgage!


CNN reports that a "Postal authorities say a Michigan postal worker has admitted to stealing some $20,000 worth of first-class stamps since September and trying to sell them to online auction-site customers to help pay his mortgage. An arrest warrant has been issued for John Auito, 42, of Macomb, Michigan. Auito, a postal employee since 2003, resigned after investigators confronted him on April 30."

I wonder if he stole the 'forever' stamps as they would have a higher resale value. Now, that he in jail there will almost surely be a foreclosure.

Friday, May 08, 2009

Congress shares the blame for the financial crisis

While politicians and the press are busy blaming bankers for all our current economic ills, The Economist says the government needs to share much of the blame:
Governments spent a fortune encouraging people to buy houses. That was a mistake they now risk repeating

BANKERS, frauds, predatory insurers: there has been a stampede to punish the villains of the global meltdown. Yet one culprit is not only rarely seen as an offender, but is also being cosseted and protected. Governments’ obsession about home ownership has contributed as much to the meltdown as any moustache-twirling financier.

The bust began in America’s housing market and soon spread to government-sponsored institutions created to increase home ownership, Fannie Mae and Freddie Mac. Part of the problem came about because of policy. In most rich countries the state subsidises private housing. ...

Government backing sucked money into housing, boosting prices. Since millions use their homes as collateral for general loans, the house-price boom also exaggerated the consumer boom while it lasted, and amplified the bust when that came. Perversely, public policy even undermined the very things governments were trying to encourage. Housing policy aims at boosting savings. Yet home-equity loans and “negative amortisation” mortgages boosted spending.

In their efforts to stem the financial crisis, governments have thrown money at everything, including housing. Some of this is justified, but they are making their ultimate task harder. The state should in the medium term be aiming to slash subsidies for housing. ... There is no argument for a tax break worth, in practice, ten times as much to the rich as to the poor.
The Economist has more on the subject here.

Thursday, May 07, 2009

Suburbs are the wave of the future

Despite the occasional rantings of a few automobile-less Washingtonians in this blog's comments, suburban living is here to stay. Not only are people still choosing to live in the suburbs, but employers are increasingly opening up shop in the suburbs. (Think Tyson's Corner, Reston, Chantilly, etc.)
Despite the wishful thinking of urbanophile pundits and policymakers, central cities have little realistic chance to reclaim their pre-1950 role as the dominant arbiters of American life.

Short of a catastrophic change, the country will remain predominately made up of suburban, exurban and small town residents. Since 2000, more than four-fifths of metropolitan growth has taken place in suburbs and exurbs. Economically, we see a similar pattern. According to a recent Brookings Institution study of 98 large metropolitan areas, only 21% of employees work within three miles of downtown.

Wednesday, May 06, 2009

Zillow: 22% of homeowners are underwater

The percentage of homeowners underwater keeps rising:
Home values in the United States extended their fall in the first quarter, with more than one in five homeowners now owing more on their mortgages than their homes are worth, real estate website Zillow.com said on Wednesday.

U.S. home values posted a year-over-year decline of 14.2 percent to a Zillow Home Value Index of $182,378, resulting in a total 21.8 percent drop since the market peaked in 2006, according to Zillow's first-quarter Real Estate Market Reports, which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold. ...

Declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter, Zillow said.

By comparison, 17.6 percent of all homeowners owed more on their mortgage than their property was worth in the fourth quarter of 2008, and 14.3 percent were underwater in the third quarter of last year, the reports showed.
Zillow says U.S. home prices have fallen 21.8% since the peak, while S&P/Case-Shiller says that as of Q4 2008 prices have fallen 26.7%. I don't know which source is more accurate.

Also, there's a new type of shadow inventory: people who would like to sell if the market improves.
Meanwhile, potential sellers appear to be holding back until evidence of an improved housing market. In a separate survey of homeowner sentiment, nearly one-third, or 31 percent, of homeowners said they would be at least somewhat likely to put their homes on the market in the next 12 months if they saw signs of a recovering real estate market, the reports showed. ...

"Unfortunately, given the magnitude of the current rates of decline, we're still many months away from a bottom even as depreciation slows," [Dr. Stan Humphries, Zillow vice president of data and analytics] said. "Moreover, the additional information we have this quarter on 'shadow inventory,' with one-third of homeowners indicating they would like to put their home on the market if conditions improve, confirms our earlier fears that a bottom in home values could be quite protracted."

"By our calculations, this could translate into as many as 20 million homes that could seep into the market as prices stabilize, maintaining a constant stream of supply that far outpaces demand, thus keeping prices flat. I'm doubtful that we'll see the bottom until 2010, and thereafter it's increasingly clear that we're likely to have a long bottom before we see meaningful recovery in home values," Humphries said.
The typical homeowner owns his house for about seven years. When you consider the fact that the housing market has been declining for almost 3-4 years (depending on whether you look at prices or sales), it's not surprising to see a buildup of homeowners who would like to sell when the market improves.

Tuesday, May 05, 2009

Our hero!


From Diana Olick:
Of course, "while pending home sales have historically been a one-month leading indicator to existing home sales, with a 71% correlation using a one-month lag," writes JP Morgan analyst Michael Rehaut, "we note that since October, the relationship has been more volatile. Specifically, Feb.’s Pending Home Sales rose 2.0%, but March Existing Home Sales fell 3.0%." Rehaut adds that rising unemployment and weak consumer confidence will keep these levels depressed through the year.

Monday, May 04, 2009

How to prevent bank-owned homes from falling into disrepair

This is a good idea. It can also push banks to drop homes to rock-bottom prices in order to sell them as quick as possible.

Friday, May 01, 2009

When will housing prices recover?

The view of First American CoreLogic economist Sam Khater:
I think, absolutely, the first chance for any kind of housing recovery is late 2010. We’ll see some bumps from the stimulus and the economy will look somewhat better than it really is. But we won’t see any housing bottom — and I’m talking prices — until late 2010. To me, the price is the most important thing.

Bank-owned homes being destroyed