BuilderBytes' MetroIntelligence Economic Update for 10/31/12

Please click here to see the edition of BuilderBytes for 10/31/12 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• Case-Shiller 20-city Index rose by 0.9% in August and by 2.0% year-over-year
• Consumer spending rises for third straight month as personal income also rises

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BuilderBytes' MetroIntelligence Economic Update for 2/01/12

Please click here to see the edition of BuilderBytesfor 2/01/12 on the Web.

In this issue of theMetroIntelligence Economic Update, I covered the following indicators:

• Case-Shiller Indices show continued decline in home prices
• Consumer Confidence Index decreases slightly in January
• Chicago Business Barometer falls slightly in January but still marks 28th month of expansion
• Personal income up, consumer spending flat in December
• Employment cost index rises by 0.4% in December in line with expectations

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BuilderBytes' MetroIntelligence Economic Update for 10/27/201

Please click here to see the edition of BuilderBytes for 10/27/2011 on the Web. In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• New Home Sales in September Rise More than Expected as Prices Fall
• Annual Rates of Change from the S&P/Case-Shiller Home Price Indices Continue to Improve
• FHFA House Price Index Falls by 0.1% in August
• Consumer Confidence Index Declines in October Following September Rise
• Mortgage Applications Rise by Nearly 5% Over Previous Week
• Slump in Demand for Airplanes Sends Overall Durable Goods Orders Down by 0.8% in September

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BuilderBytes' MetroIntelligence Economic Update for 9/29/2011

Please click here to see the edition of BuilderBytes for 9/29/2011 on the Web. In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• New home sales and prices continue to fall, but inventory totals just 6.6 months.
  
• Case-Shiller composite indices rise for fourth month
  
• Consumer confidence index sends mixed signals for September
• Mortgage loan applications rise as rates decline
• Orders for non-defense capital goods rise more than expected
  

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Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

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Home price declines flattening, but not evenly

Although the S&P/Case-Shiller national index is showing a flattening in the pace of price declines for the third month in a row, for various price ranges and different cities, the pain continues or is expected in the future. I'll be interviewing Dr. Shiller tomorrow at 12 noon (Pacific time) for my Housing Chronicles show on BlogTalkRadio.com, and I'm sure I'll be asking his opinion on these differences. From an L.A. Times story:

Home prices in 20 metropolitan areas were down 18% in April compared to the same month the previous year, according to the S&P/Case-Shiller home price index.

In the Los Angeles area, which includes Orange County, April home prices fell 21% from the previous year.

Los Angeles County and Orange County prices in April were down 42% from their 2006 peak, the index shows. The 20-city index was down 33% from its 2006 peak.

The Case-Shiller index had posted record year-over-year declines from October 2007 to January of this year. April's index was the third straight month in which the pace of price declines slowed slightly...

While Los Angeles area price declines have slowed, Charlotte, Chicago, Cleveland, New York, Portland and Seattle posted record year-over-year declines in April.

The worst year-over-year declines in April were in Phoenix (35%), Las Vegas (32%) and San Francisco (28%).

Los Angeles area price declines have varied substantially by price segments. The lowest-priced third of homes sold in April is down 54% in price from its peak, according to Case-Shiller; the middle third was down 42%; and the most-expensive third of homes sold was down 31%.

The lowest-priced homes in the Los Angeles area had more room to fall - they had also shown the largest price increases during the real estate bubble, with prices in that segment inflated by subprime lending...

Nontheless, because the mid-level and upper-price tiers depend largely on buyers moving equity from the entry-level tier, it's only a matter of time before we see price declines even out, and that process is already starting in certain markets.

Phoenix the first market to see 50% declines in home prices

Although the drop in the Case-Shiller index seems to be slowing in some markets, even the lower rate of decline has meant overall drops of well over 30% for most markets which participated in the housing boom and bust. In Phoenix, the total price decline since the crest was reached in 2006 has now passed 50%. From a New York Times story:

Phoenix has achieved the unwelcome distinction of becoming the first major American city where home prices have fallen in half since the market peaked in the middle of the decade, according to data released Tuesday.

Though historical statistics are scant, experts said the precipitous decline probably had few if any equals in modern times...

Home prices in the Sun Belt city, the 12th-largest metropolitan area in the United States, dropped 4.5 percent in February, according to the Standard & Poor’s Case-Shiller Home Price Index. Prices in Phoenix are now down 50.8 percent since the market peaked in June 2006.

For the country as a whole, the Case-Shiller numbers offered the thinnest of silver linings: things are still getting worse, but more slowly.

In February, the price of single-family homes in 20 major metropolitan areas fell 18.6 percent from the year earlier, compared with a record drop of 19 percent in January.

“Finally, we’re seeing a touch of moderation,” said David Blitzer, chairman of S.& P.’s index committee. “This is the kind of thing one might see if we’re beginning to see a bottom. I would not run out and celebrate, but I would not dig the bunker any deeper.”

Economists said housing prices would probably continue to fall as Americans, worried about rising unemployment and the recession, put off big financial decisions like buying a home.

Some economists expect housing prices to fall another 5 to 10 percent before they hit a bottom; others say that prices could decline by as much as a third. According to the National Association of Realtors, the median price of a home in the United States, which peaked above $230,000 in 2006, has fallen to $175,200.

As prices have dropped, frozen housing markets in hard-hit areas like Southern California, Phoenix, Las Vegas and South Florida have begun to thaw. Record-low mortgage rates and huge inventories of foreclosed homes and other fire-sale properties have enticed first-time buyers to the market and lured others who had been sitting on the sidelines.

Home sales in Southern California and the San Francisco Bay area, where foreclosures dominate many markets, have snapped back this spring as prices dropped. But sales have slowed to a crawl in other markets like New York City, where prices declined 10 percent from a year ago...

And over at the Calculated Risk blog, there's a handy chart comparing the major metro areas studied by Case-Shiller, which you can find here.

Declines in the Case-Shiller Index not uniform

Up until recently, the declines in the S&P/Case-Shiller Index have disproportionately hit the lowest third of the pricing tier (the index subdivides home sales into low, mid, and high-level tiers that are customized for each metro area they study).

In the Los Angeles (Southern California) region, that's meant that the declines in the entry-level category (priced under $309,184) reached 51% between the peak in 2006 and January of 2009. That compares to declines of 39% for the mid-level tier (priced from $309,184 to $470,182) and 29% for the highest tier (priced over $470,182). The decline for all homes during the same time period was 39%.

More recently, however, it looks like home prices in the upper two tiers are beginning to finally capitulate. Over the last six months in Los Angeles, the index shows declines of 11% in the middle and upper tiers versus 17% for the lowest one, and between December of 2008 and January of 2009, the declines for all tiers ranged from 2% to 3%. In other words, the declines are starting to mirror each other through all pricing categories.

To me this makes perfect sense. In the beginning stages of this downturn, it was the sub-prime borrowers who were put in homes they couldn't afford, and, in general, they would have purchased entry-level homes. But as the recession hit, business owners and executives also starting seeing smaller bonuses, which meant that the priciest homes (especially those priced over $1 million) started seeing declines. For months, the one category which was often defying the market more than the other two tiers was the mid-level one.

But without sufficient equity to trade up from entry-level homes and a greater interest among investors for entry-level foreclosures, the reason mid-level homes were holding firmer was because their owners have more resources. But with unemployment now hitting 8.5% nationally (the highest since 1983), the mid-level tier is getting hit with larger economic pressures, and I'd expect to see some greater corrections throughout 2009 and into 2010.

S&P/Case-Shiller Index
January 2009
Los Angeles	Low Tier	Middle Tier	High Tier	All Sales
12-month	37%	24%	18%	26%
Peak	51%	39%	29%	39%
Nov-Jan.	7%	5%	4%	5%
Dec-Jan	3%	2%	2%	3%
July-Jan	17%	11%	11%	14%
San Diego
12-month	29%	20%	21%	25%
Peak	50%	39%	32%	41%
Nov-Jan.	5%	3%	5%	5%
Dec-Jan	3%	1%	3%	3%
July-Jan	14%	10%	15%	14%
San Francisco
12-month	39%	25%	18%	32%
Peak	58%	39%	25%	43%
Nov-Jan.	8%	5%	7%	8%
Dec-Jan	5%	3%	4%	4%
July-Jan	20%	13%	15%	21%

In San Diego -- which is often seen as a bellwether for California because it entered the housing recession earlier than other parts of the state -- the correction is already being felt in the high tier, so I'd expect to see prices in the middle tier start to capitulate more this year.

In San Francisco, although its housing downturn was later than San Diego's, it seems to be making up for lost time, with declines over the last two months ranging from 3% to 5% among the three tiers.

Although two months do not a trend make, it will be very telling to see what continues to happen with this index in the months ahead.

L.A. home prices continue their descent

The most recent Case-Shiller numbers for August 2008 are out, and they're continuing to show sharp pricing declines from last year. But what's interesting to me is that the price declines -- at least so far -- have been far sharper for homes priced under $380,000 (-39%) than for those priced in the top third, or over $573,000 (-19% decline).

So can these higher-priced homes continue to hold their values, or are they destined to fall further to match the sharper decline in cheaper homes -- which have historically provided the required equity to move up to pricier homes? Given the economic fundamentals at work, I think it's just a matter of time before we see sharper declines at the higher end.

From an L.A. Times story:

The Standard & Poor's /Case-Shiller index of home prices in 20 metropolitan areas was down 16.6% in August from the same month a year ago. Los Angeles and Orange County home prices were down 26.7% in August compared with August 2007...

Close behind in their August annual price drops were Miami (28.1%), San Francisco (27.3%) and San Diego (25.8%).

The smallest August yearly declines were in Dallas (2.7%) and Charlotte (2.8%).

In the Los Angeles area, lower-priced homes showed greater price declines than the high end of the market. The lowest-priced third of homes, those under $380,000, declined 39% in value in August compared with August 2007, according to the index. Prices of the top third of homes, those priced above $573,000, fell 19% in August compared with a year ago.

Lower-priced Los Angeles area homes dropped 42% from their fall 2006 peak price. The highest-priced third of Los Angeles area homes were down 21% from their peak in the summer of 2006.

Overall, Los Angeles area home prices were down 31% from their fall 2006 peak and matched spring 2004 prices.

Click here for full story.

Case-Shiller: where will prices go next?

Despite the continuing declines in the Case-Shiller index, some economists still think that prices in certain cities have more decreases in store before hitting bottom. From a BuilderOnline.com article:

As Cleveland goes, so goes the nation?

That's one hopeful way of looking at the Case-Schiller Index, which tracks home prices in 20 major cities. The data for April, which were released this morning, show that Cleveland—whose prices had fallen nearly 14 percent from its peak in August 2006—might be stabilizing. "The fear had always been that prices in markets like Cleveland would go too low, but the data suggest that Cleveland has found a bottom and may be bouncing back," observes Dean Baker, economist and cofounder of the Center for Economic and Policy Research.

Baker presented his latest take on housing market conditions during a teleconference this morning, and on the whole his prognosis is not good. The Case-Schiller Index in April, at 169.85, is down 15.2 percent from the same month in 2007. Adjusted for inflation, the decline is closer to 20 percent, Baker estimates, which means that over the previous 12 months, the housing market lost $4 trillion in value.

While some cities, such as Seattle, Dallas, and Denver, have enjoyed modest price increases, other major metros have seen home prices spiral downward. The composite annualized index during the first quarter for the cities Case-Schiller tracks declined by 22.1 percent, a falloff that Baker observes hasn't been as steep since the Depression era in the 1930s. "Bubble cities," which experienced huge price run-ups earlier this decade, have even seen an acceleration in their price erosions, says Baker: Annualized rates during the first quarter were off 35.6 percent in Phoenix, 33.7 percent in Los Angeles, 35.6 percent in San Francisco, 36.8 percent in Las Vegas, 31.5 percent in Miami, and 29.3 percent in Tampa, Fla...

Baker is considered to be among the more pessimistic of housing economists, but his outlook now sounds practically mainstream: This morning, Global Insight’s housing analyst Patrick Newport told MarketWatch that he also believes the Case-Schiller Index might need to fall another 20 percent to 30 percent, and that prices would need to go down another 10 percent, before the housing market stabilizes. Both Baker and Newport agree that the overabundance of unsold homes on the market is one of the primary reasons why home prices keep declining. Baker, though, points to two other factors: interest rates and unemployment, which have both been creeping up. Baker expects interest rates to hit 7 percent by the end of this year.

He also notes that declines in home prices are being exacerbated by the sheer volume of foreclosures that are dragging down prices in all markets. Baker worries that foreclosures will put more stress on Fannie Mae and Freddie Mac, which are now guaranteeing about 80 percent of the mortgages being issued.

Case-Shiller index shows steep pricing decline

The S&P/Case-Shiller index for March 2008 is out, and shows a 14% pricing decline for the 20-city index during the first quarter of 2008 versus 2007. From an L.A. Times story:

U.S. home prices continued to fall at a record pace through March, according to a major indicator released today. The Standard & Poor's/Case-Shiller U.S. national home price index fell 14.1% in the first three months of 2008 compared with the same period a year earlier. The decline was the largest in 20 years for the index, which covers all U.S. Census divisions... The index showed an even sharper drop in Los Angeles and Orange County, where March prices fell 21.7% from a year earlier. Las Vegas showed the biggest year-over-year drop in March (down 25.9%), followed by Miami (24.6%) and Phoenix (23%). Charlotte, N.C., was the only city among the 20 to record a March price increase, 0.8%... More bleak housing news came today from the U.S. Commerce Department, which reported that April home sales were down 42% from the same month a year earlier. The traditional March-to-April bounce in home sales was also much smaller than in previous years. April sales were up 3.3% from March this year. In 2007, sales rose 10% from March to April.