Case-Shiller Index
Home Price Expectations…Down of Up?
Double Dip or Double Your Money? … or Both?
Last week, MacroMarkets LLC announced the results of the March 2011 Home Price Expectations Survey, compiled from 111 responses of a diverse group of economists, real estate experts and investment and market strategists. Many media sources reported on the survey’s comment about a projected ‘double dip’ in prices. What the media didn’t aggressively cover was the other projection in this same report. Today we want to shed light on both portions.
Double Dip
There is no doubt the survey looked negatively on house prices through the rest of 2011. Robert Shiller, MacroMarkets co-founder and chief economist said:
“Overall, the sentiment among our expert panel regarding the U.S. housing market outlook continues to deteriorate. Now they are expecting only a weak recovery, and even that is not until 2013. This uninspiring view must be influenced by the persistently weak market fundamentals – high unemployment, supply overhang, an unabated foreclosure crisis, and constrained mortgage credit.”
Terry Loebs, MacroMarkets managing director commented on the dreaded ‘double dip’.
“Many more experts are now projecting a double-dip after witnessing the double-dead cat bounce that came in the wake of expired government stimulus programs. In December, only 15% of our panelists were projecting that a new post-crash low would materialize for national home prices. Now, just three months later, almost 50% foresee a double-dip happening this year, and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming 5 years.”
However, the longer term view of home prices was much more optimistic.
Double Your Money
The experts projected that by the end of 2015 home prices would attain a cumulative level of appreciation of almost 10% (see chart below from the report).
This means, if you purchased a house today with a 10% cash down payment, you could double your cash in five years; even taking the projected double dip into consideration.
Shiller also noted that there continues to be significant dispersion among the panelists regarding their individual home price forecasts:
“A few respondents do see a real recovery, predicting prices up 20% or so by 2015.”
If that happens, you would have TRIPLED your cash.
Bottom Line
If you are thinking of selling in the next 12 months, you should do it before the projected ‘double dip’. If you are thinking of buying and you plan to live in the home for at least five years, your financial investment will be fine.
Ignore The Case-Shiller Index; Focus On The Future Instead
Last week, Standard & Poor’s released its Case-Shiller Index for December 2010. The index is a home valuation tracker, meant to meausure the change in home prices from one period to the next.
December’s Case-Shiller Index showed major devaluations nationwide. As compared to December 2009, on a year-over-year basis, home values fell in 18 of the Case Shiller Index’s 20 tracked markets, and the U.S. National Index dropped 4 percent overall.
The retreat puts December’s home values at similar levels as compared to early-2003.
That said, buyers and sellers in the The Highlands area would be wise to take the findings lightly. The Case-Shiller Index is inherently flawed. As such, its results are neither practical — nor relevant — to everyday Americans.
There are 3 Case-Shiller flaws, in fact.
The first flaw is the index’s limited sample set. Wikipedia lists 3,100+ municipalities nationwide and we can be certain that real estate is bought and sold in all of them. The Case-Shiller Index, however, measures just 20 of them. That’s less than 1% of all U.S. cities. And then, within those tracked cities, Case-Shiller reports an average, lumping disparate neighborhoods and streets into one big number.
The “national figures” aren’t really national, and the “city data” doesn’t apply to your home, specifically.
The second Case-Shiller Index flaw is how it measures home value changes. The index only consider at “repeat sales” of the same home, so long as that home is a single-family, detached property. Condominiums, multi-family homes, and new construction are ignored in the Case-Shiller Index.
Because distressed properties account for such a high percentage of resales lately — 36% in December –foreclosures and short sales skew Case-Shiller Index worse.
And, lastly, the Case-Shiller Index is flawed by “age”. Because it reports closed sales a 60-day delay, December’s Case-Shiller Index is measuring the values of home sales contracts from September and October. The Case-Shiller Index, therefore, is a snapshot of the not-so-recent past, and does little to tell us about the next 60 days.
Overall, the Case-Shiller Index is helpful tool for economists and policy-makers, but it doesn’t do much good for individual homeowners across the city of Fort Lee or anywhere else. For accurate, real-time housing data in your local market, talk to a real estate professional instead.
Why You Shouldn’t Put Too Much Faith In October’s Case-Shiller Index
The Case-Shiller Index posted awful numbers in its most recent reading. Each of the index’s 20 tracked markets showed home price deterioration between September’s and October’s respective reports. Some markets fell as much as 2.9 percent.
The drop in values is nothing about which to panic, however. The Case-Shiller Index is just re-reporting what we already knew. It’s a common theme with the Case-Shiller Index, actually; a trait traced to the report’s methodology.
The Case-Shiller Index is an imperfect housing indicator with 3 inherent flaws.
The first flaw is that the index makes use of a limited data set, tracking values in just 20 cities nationwide. That data set is then projected across the more than 3,100 other municipalities in the United States. The “national figures”, therefore, aren’t really national.
The second flaw is that, even within the tracked 20 cities, not all home sales are included. The Case-Shiller Index only tracks sales of single-family, detached homes, and within that market subset, it only uses homes that are “repeat sales”. This specifically excludes sales of condominiums and multi-family homes, and new construction.
Lastly, Case-Shiller Index’s third flaw is its “age”. The Case-Shiller Index reports on a 60-day delay, and the values it reports are tied to contracts written even longer ago. Sales contracts from July and August are responsible for October’s closings so when we see the Case-Shiller Index as reported in December, some of the data it’s reporting is 5 months old already. That’s too old to be relevant.
Looking back at 2010, housing was at its weakest between May and August. Therefore, it’s no surprise that the most recent Case-Shiller Index shows significant weakness. Looking forward, we should expect the report to improve — especially because of how strong New Home Sales and Existing Home Sales have been since summer.
The Case-Shiller Index is helpful for economists and policy-makers. It’s not much good for individual homeowners, however. For accurate, real-time housing data, talk to a real estate professional instead.
September’s Case-Shiller Index Reflects A Slowing Housing Market
Standard & Poors released the September Case-Shiller Index Tuesday. The Case-Shiller Index is a home-value tracker. The report shows home prices down 0.7% from August and values fading, in general.
Case-Shiller representatives assessed the findings as “another weak report; weaker than last month”, citing deterioration in 18 of 20 tracked markets. Upward pricing momentum from the summer is slowing and values remain 30% off the market’s June 2006 peak. It could spell bad news for home sellers in Chester this winter.
That said, the Case-Shiller Index is imperfect; its methodology flawed. The index is not meant for use by individual buyers or sellers — for 3 reasons.
First, the Case-Shiller Index reports on a 2-month delay. Today is December 1 and we’re discussing data from September. In the 8 weeks since, the economy has shifted to a net jobs gainer, and the Federal Reserve has committed to $600 billion in re-investment. These are major developments that weren’t a part of September’s housing market, but are relevant today.
Especially because employment is largely believed to be a keystone to housing.
Second, the Case-Shiller sample set is limited to just 20 cities nationwide. This means that most U.S. home sales are specifically not included in the Case-Shiller Index’s monthly findings.
And that ties into reason number three — all real estate is local. No matter what the Case-Shiller Index says about the country, what matters to your local market is what’s happening in your local market. Each neighborhood has its own housing economy and that’s something that can’t be captured by a national report.
Will Your House Be Worth More This Spring 2011
- Price must be compelling in Chesterfield VA
I was once told a good decision is only as good as the facts. I open this BLOG post with a question for every homeowner who is thinking about selling their home this upcoming spring…if you were to be honest…do you think property values will be higher this spring? This is a question anyone thinking about selling must ask. Should they sell now or should they wait for the spring? Most years that would be an interesting question. There is a belief that many buyers come out in the spring and, with that increase in demand for housing, prices may appreciate. This year is unlike any year in recent memory. Most experts believe there will be continuing depreciation of home values throughout the next 18 months.As I posted on recent BLOG post, there may be a window of opportunity throughout the rest of 2010 as the banks try to straighten out the paperwork on thousands of foreclosures. Once that paperwork is corrected, the flow of distressed properties coming to the market at discounted prices will begin again.
This was mentioned in the latest Home Price Expectation Survey. Robert Shiller, MacroMarkets co-founder and chief economist said this:
“Over the past month, the average projection for 2010 nationwide home price performance improved slightly among our experts, but for each year thereafter it deteriorated. One plausible explanation for this month’s more negative overall sentiment is recent news concerning foreclosure processing questions and the related possibility of extending the supply pipeline.”
Other experts are also reporting that prices will soften next year
In October’s RPX Monthly Housing Market Report, CEO Michael Feder commented:
“We are at a flex point in housing valuation. With record supply, already paltry demand and systemic threats to a possible correction, we remain terribly concerned about forward home prices.”
The very next day, in a special release, Clear Capital reported a “sudden and dramatic” drop in U.S. home prices:
Most recent data shows a two-month 5.9% price decline representing a magnitude and speed of decline not seen since March 2009; similar declines for September and October expected to appear in other industry indices in coming months.
Bottom Line
If you plan to sell within the next year, you shouldn’t wait for the spring market. Price the home at a compelling price to make sure it sells in the next sixty days. I would welcome the opportunity to chat with you about your homes market value.
Now Is The Best Time To Sell And/Or Buy?
Every now and then and seems more like now…I’m asked the question…how can you tell the buyer in the afternoon that this is a great time to buy a home and in the evening tell the homeowner that they have to lower their price in order to sell their home. Wait a minute. How can it be a great time to buy if prices are falling? Am I just saying this to make a sale? Actually, in both circumstances I am 100% correct. Perhaps for the first time in American real estate history, you must buy now and you must sell now. How can this be? Because what is important to the buyer is different than what is important to the seller. Let me explain.
The most important thing to the seller: PRICE
Just about every seller is most concerned with trying to get the best price possible for their home. In order to do that, they must sell now. Banks repossessed the highest number of foreclosed homes in history last month. These houses will come to market at dramatically discounted prices. This is the main reason analysts are calling for another dip in prices over the next eighteen months. The best advice a seller can receive is to sell their home now before these foreclosures come to market.
The most important thing to the buyer: COST
Price plays a part in the buyer’s decision. However, the most important thing to most buyers is the cost – the mortgage payment they must pay every month. That payment is determined by the price of the home AND THE INTEREST RATE ON THE MORTGAGE. Rates are artificially low because of government intervention. That will not last forever.
The National Association of Realtors (NAR) has projected that rates will rise over the next seven quarters. What will that do to the cost? Here are NAR’s projections and what impact it will have on a $100,000 mortgage:
As we can see, the interest rate has a major impact on the COST of the home. Even if prices continue to fall, the cost may not go down if interest rates increase.
Bottom Line
I’m trying to give the best advice I can to every family and/or individual I work with – even if that advice seems to be counter intuitive.
Existing Homes Sales Down For September For Central VA (Expected)
The news is not as bad as it might appear at face value. I knew this would happen because when the numbers come out they are compared with the same month of last year. Last year, August through October, we had an anomaly with the tax incentive program in play. Something which we do not have this year. The numbers for our area (CVRMLS) for September 2010.
Pending Sales & Sales Success
In this market segment, Pending Sales for September are down by 13.72% to 1,038 versus September of last year at 1,203 that went under contract. With 2,808 newly listed homes this month and 1,038 under contract, the sales success index of 36.97% for September decreased 5.70% versus last year’s index of 39.20% in 2009.
Median Prices
According to the September 2010 statistics, this market area has experienced some downward momentum with the decline of average prices at closing. Prices dipped 1.29% to $211,307 versus the previous year September at $214,066. This is a difference in price of $2,758.
New Listings & Months Supply of Inventory
New Listing in this area for the month of September yielded 2,808 available resale dwellings. This was a decline of 8.50% or 261 units in comparison to September 2009. The total housing inventory at the end of September dipped by 0.60% to 13,783 existing homes available for sale. At an average of 1,075 closed sales per month over the last 12 months (October 2009 – September 2010), represented an unsold inventory index of 12.83 MSI for this market segment.
Full Report
Case-Shiller Shows Slowing Growth In Home Prices… Two Months Ago
For the 17th straight month, the Case-Shiller Index reports that home values are rising across the United States. As compared to June, July’s prices were up by 4 percent.
However, despite the improvement, July’s Case-Shiller Index showed weaker as compared to prior months.
- In June, just 3 cities posted year-to-year reductions in home value. In July, 10 of 20 did.
- In June, just 1 city posted a month-to-month reduction in home value. In July, 7 of 20 did.
As a spokesperson for Case-Shiller said, values “crept forward” in July. But not that it matters — the Case-Shiller Index is a better tool for economists than it is for homeowners in Chesterfield. This is for 3 reasons.
First, the Case-Shiller Index is on a 60-day delay but real estate sales are based on prices today. A lot can change in 60 days, and it often does. Therefore, the Case-Shiller Index is a better snapshot of the former market than the current one.
Second, the Case-Shiller Index is geographically-limited. It tracks just 20 cities, ignoring some of the largest metropolitan areas in the country including Houston, Philadelphia, and San Jose. Smaller cities like Tampa are included.
And, lastly, national real estate data remains somewhat useless anyway. All real estate is local, rendering citywide statistics too broad to have any real meaning to an individual. To find out what’s happening on a neighborhood-by-neighborhood level, you can’t look to a national survey — you have to look to a local real estate agent instead.
Case-Shiller Posts 16th Straight Month Of Home Price Improvement
According to the Standard & Poors Case-Shiller Index, home values rose 5 percent in June versus the month prior, and 4 percent from a year earlier. It’s the 16th consecutive month in which Case-Shiller reported an increase in home values and the third straight month of outstanding results.
That said, homeowners and home buyers in Chesterfield would do well to temper Case-Shiller enthusiasm. The June figures are issued on 60-day delay and, over the last 60 days, housing data has been lackluster at best.
- Existing Home Sales are down 27 percent
- New Home Sales are down 12 percent
- Homebuilder confidence is down
Stories like these highlight a key weakness of the Case-Shiller Index — it’s out of date as soon as it’s published. Because of this, the Case-Shiller Index relevance to everyday Americans is muted. People don’t buy homes in the “60 days ago” real estate market, after all.
June is ancient real estate history to buyers and sellers in Meadowville Landing.
However, the Case-Shiller Index does have its place. As the most widely-followed, private-sector housing tracker, the index is used to help make policy decisions and to shape Wall Street’s expectations of the economy. This means that a strong Case-Shiller reading can cause mortgage rates to rise, and a weak Case-Shiller reading can cause rates to fall.
Tuesday, mortgage rates fell.
Case-Shiller Shows Home Price Improvement In 95% Of Cities
Standard & Poors released its Case-Shiller Index Tuesday. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked markets. It’s the second straight month of strong Case-Shiller findings.
Also, May’s numbers are a mirror-image of February’s. In February, 19 of 20 markets lost value.
In its press release, the Case-Shiller staff resisted calling May’s data proof of a housing recovery, noting that home values remain flat as compared to October of last year. However, there are some noteworthy numbers in the Case-Shiller report.
- 13 of the 20 tracked cities are showing home price improvement year-over-year
- Foreclosure posterchlld San Diego has now shown 13 straight months of improvement
- San Diego, San Francisco and Minneapolis are showing double-digit annual growth
These are all good signs for the housing market, but the Case-Shiller Index is not without its flaws. Most notably, the data is limited to just 20 cities nationwide — and they’re not even the 20 largest ones.
Cities like Houston, Philadelphia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.
Another Case-Shiller flaw is that it reports on a 2-month delay.
Therefore, today is several days from the start of August but we’re now reflecting on data from May. Given the speed at which the Chester real estate market can change, May’s data is almost ancient. Today’s values may be higher or lower than what Case-Shiller reports.
For home buyers, reports like the Case-Shiller Index may not be useful in making a “Buy or Not Buy” decision, but can aid in watching longer-term trends in housing. For real-time data, talk to a real estate agent with access to local figures instead.
