Home Price Index
I talk with 10-20 homeowners a day with regards to either their home expiring, being withdraw, or they have been released from the listing agreement with their previous agent. Ultimately, the number one reason these homes did not sell is the list price is not what the current market preceives as value, period. What happens with this group is the homeowner ends up becoming the highest bidder with their home. Something I don’t think any homeowner wants, was planning on or expecting.
Condition, location, exposure and price will determine when and if a home will sell. To be honest all 4 categories filter back to price. Meaning, if the condition is poor then the list price needs to reflect this. If a home needs deferred maintenance and the homeowner does not want to do this, not sure why in today’s market, then the price needs to reflect this. Each category reflects back to price. Maybe, exposure is not as price driven but again the longer it takes for a homeowner(s) to understand pricing the more money or equity they will lose. Without a doubt 85% of the homeowners marketing begins with price. It’s amazing to me how many homeowners have to go through the school of hard knocks to realize this. Hope over reality is what they have. I am not being disrespectful or mean. I work with more sellers than I do with buyers. In fact, 90% of my business is selling homes. I get it…values are down and the largest financial investment a homeowner has the equity is flying out the window like a bad draft.
If I had dollar for every time I have said what I am getting ready to share, I wouldn’t need to be in real estate. I say this over and over to the groups I network with and even to my clients, ” a homeowner who is going to put their hat in today’s real estate arena MUST price their home compellingly or DO NOT put the property on the market. Wait 4-6 years for the market to get better.” If the time frame is not realistic for the homeowner then NOW is the time to get the home on the market. Again, this is not me writing nonsense BLOG posts. I back what I am sharing with facts. Look at today’s headlines. Look at the BLOG post I posted several days ago…it’s happening and their is a reason why, click here.
New Home Sells Hits a 6 Month Low
(WASHINGTON) — Sales of new homes fell to a six-month low in August. The
fourth straight monthly decline during the peak buying season suggests the
housing market is years away from a recovery.
The Commerce Department said Monday that new-home sales fell 2.3 percent to a
seasonally adjusted annual rate of 295,000. That’s less than half the roughly
700,000 that economists say must be sold to sustain a healthy housing
New-homes sales are on pace for the worst year since the government began
keeping records a half century ago.
If you know of anyone who is thinking about putting their home on the market send them this post, they will not like it but in the end they will say thank you. Thank you for not giving me the smoke and mirrors but the facts.
Home values were reported unchanged in November 2010, on average, according to the Federal Home Finance Agency’s Home Price Index.
We say “on average” because the government’s Home Price Index is a data composite for the country. The index doesn’t measure citywide changes in places like Chester , nor does it get granular down to the neighborhood level to measure places like The Highlands.
Instead, the Home Price Index groups state data in 9 regions with each regions having as few as 4 states in it, and as many as 8.
Not surprisingly, each of the regions posted different price change figures for the period of October-to-November 2010.
A sampling includes:
- Values in the Pacific region rose +1.2%
- Values in the New England region rose +0.3%
- Values in the Mountain region fell -1.9%
The complete regional list is available at the FHFA website.
That said, none of these numbers are particularly helpful to today’s home buyers and sellers and that’s because everyday people don’t buy and sell homes on the Regional Level. We do it locally and the government’s Home Price Index can’t capture data at that level.
It’s a similar reason to why the Case-Shiller Index is irrelevant to buyers and sellers.
November’s Case-Shiller Index showed home values down 1 percent in November, but that conclusion is a composite of just 20 cities nationwide — and they’re not even the 20 largest cities. Philadelphia, Houston and San Jose are conspicuously absent from the Case-Shiller list.
So why are reports like the Home Price and the Case-Shiller Index even published at all? Because, as national indicators, they help governments make policy, businesses make decisions, and banks make guidelines. Entities like that are national and require data that describe the economy as a whole. Home buyers and sellers, by contrast, need it locally.
Since peaking in April 2007, the Home Price Index is off 14.9 percent.
This winter will see a softening of prices in most parts of the country. If you are considering selling your home in the near future, you should talk with me today, 804-980-7906. That being said, I want to explain the magnitude of the challenge.
The FHFA just released their third quarter House Price Index. In the titled they claimed: U.S. House Prices Fall 1.6 Percent in the Third Quarter; Declines in Most Parts of the Country
What is the FHFA HPI?
Federal Housing Finance Agency (FHFA) explains their pricing index this way:
The HPI is a broad measure of the movement of single-family house prices. It serves as a timely, accurate indicator of house price trends at various geographic levels. It also provides housing economists with an analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas. The HPI is a measure designed to capture changes in the value of single-family houses in the U.S. as a whole, in various regions and in smaller areas. The HPI is published by the Federal Housing Finance Agency (FHFA) using data provided by Fannie Mae and Freddie Mac.
How widespread are price declines in the report?
The easiest way to explain this is to show the pricing map contained in the report:
The majority of states have experienced weakening in house values. Many experts predict this will continue throughout the next several quarters. If you are considering selling in the near future, call me today so we can determine where prices are headed in your neighborhood.
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.
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.
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.
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.
Strategic defaults lead to foreclosures. It is important to realize that an increase in the number of foreclosures will dramatically impact any possible housing recovery. A loss of income or an increase in negative equity (where the house is worth less than the mortgage on the house) are the two main reasons that will cause a homeowner to strategically default.
The Wall Street Journal reported on the impact of negative equity on strategic default:
Most defaults are typically driven by a combination of income shock and negative equity, or what’s known as the “double-trigger” hypothesis. While borrowers who lose their jobs but have equity in their homes can sell and avoid default, those without any equity are left with fewer options.
Are strategic defaults about to skyrocket?
This week, Clear Capital sent out a special release where they reported:
This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months … This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture.
The reason this caught our attention is that the 5.9% equated with a number we recently read on strategic defaults. CoreLogic in their most recent Negative Equity Report stated:
11 million, or 23 percent, of all residential properties with mortgages were in negative equity at the end of the second quarter of 2010 … An additional 2.4 million borrowers had less than five percent equity.
Almost two and a half million homes were within 5% of negative equity and prices just fell over 5%. Strategic defaults may soar! The CoreLogic report quotes Mark Fleming, their chief economist:
“Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time.”
What about the ethical responsibility to pay our debts?
As the housing crisis has savaged more and more families, there seems to be a growing number of people who now see strategic default as acceptable. According to a recent Pew Research Center survey:
More than a third (36%) say the practice of “walking away” from a home mortgage is acceptable, at least under certain circumstances … two-in-ten (19%) say it’s acceptable and an additional 17% volunteer that it depends on the circumstances.
There will be more strategic defaults as prices fall. That will mean more foreclosures which will cause prices to fall leading to more homes in negative equity. An increase in negative equity will create more strategic defaults which will cause…
That is the vicious cycle we must break.
by The KCM Crew
According the Federal Home Finance Agency’s Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide. This, after a half-percent monthly increase in prices in May, on average.
Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May’s half-point increase is an average, and not specific to a particular area.
In contrast to “national markets”, the real estate markets in which you and I live are decidedly local. It’s a major difference and the distinction renders the Home Price Index somewhat less important.
After all, the HPI doesn’t account for housing activity in individual neighborhoods like Meadowville Landing , nor does it track value across cities like Fort Lee. Instead, it summarizes data in giant chunks of geography.
A quick look at the HPI regional data proves the point. Of the HPI’s 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average. The others varied by as much 1.3 percent.
As a sample:
- Mountain Region : + 1.7 percent
- New England : + 0.2 percent
- South Atlantic : +1.0 percent
And this is on a regional basis. The HPI’s applicability to state, city and neighborhood markets is even less appropriate.
Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood. That type of granularity can’t be tracked in a report like the Home Price Index.
The best place to get that data is from a local real estate agent that knows the market well.
Last week, the Case-Shiller Index reported home values up 0.8 percent across 20 tracked markets. The public-sector Federal Housing Finance Agency has reached a similar conclusion.
Reporting on a two-month lag, the government’s Home Price Index shows home values up 0.8 percent in April, buoyed by the expiring federal home buyer tax credit and low mortgage rates. It’s a positive signal for a recovering housing market — in Chester and everywhere else.
But just because the Home Price Index says home values are rising, that doesn’t mean they are. The Home Price Index methodology is flawed on multiple fronts.
First, the Home Price Index reports on a 60-day delay. This two-month lag turns the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for direction, HPI won’t give it to you — you’ll have to get that analysis from your real estate agent.
Second, HPI only accounts for home values in which the home’s attached mortgage is backed by Fannie Mae or Freddie Mac. As the FHA market share grows, fewer homes get included in the HPI sample set, and HPI values may be skewed high or low.
And, third, HPI doesn’t account for new home sales — only repeat ones. This, too, eliminates a major segment of the market.
All of that said, though, the Home Price Index remains important to housing. It’s still the most comprehensive home valuation model in print and it’s been giving strong readings since the start of year. You can’t ignore that on any level.
It’s July and you may have missed the “rock bottom” The Highlands home prices from earlier in the year, but homes are still relatively inexpensive. Couple that with all-time low mortgage rates and home affordability looks excellent. Consider making an offer while the terms are right.
Home values fell again in January, according to the Federal Home Finance Agency’s Home Price Index. Values were reported down 0.6 percent, on average.
We say “on average” because the Home Price Index is a national report. It doesn’t capture the essence of a local market like Meadowville Landing , or even a city market like Fort Lee.
The most granular that the monthly Home Price Index gets is regional and January’s report shows that:
- Values in the Mountain states rose 2.0%
- Values in the Pacific states were flat
- Values in the East North Central states fell 1.8%
It’s hardly helpful for home buyers entering the market, or home sellers trying to properly price a home. Furthermore, because the Home Price Index reports on a 2-month delay, its data fails to reflect the current market conditions.
Versus January — the period from which HPI data is collected — mortgage rates are lower, buyer activity is up, and the federal home buyer tax credit is closer to expiring. These each can have an impact on housing.
Ultimately, national real estate data like the Home Price Index is best suited for lenders and policy-makers. National data helps to identify trends that shape formal policy, but it doesn’t help you, specifically.
Since peaking in April 2007, the Home Price Index is off 13.2 percent.