Good overview of Case/Schiller numbers

[Spartacus]

http://interestrateroundup.blogspot.com/


first couple paragraphs
The latest S&P/Case-Shiller figures show home prices falling (PDF link) at an ever-faster rate. In the month of February ...

* Prices fell 2.7% between January and February in 20 major U.S. metropolitan areas. Prices were off 12.7% from a year earlier. That was worse than the 10.7% decline reported in January and the biggest decline so far for the monthly index, which was first published in 2001.

* The 10-city index has a longer history. It declined 13.6% year-over-year. That was worse than the 11.4% drop in January and the worst since S&P started tracking in the late 1980s.

[santafe2]

Re: good overview of current news April 29, especially new Case/Schiller numbers

http://interestrateroundup.blogspot.com/


first couple paragraphs
The latest S&P/Case-Shiller figures show home prices falling (PDF link) at an ever-faster rate. In the month of February ...

* Prices fell 2.7% between January and February in 20 major U.S. metropolitan areas. Prices were off 12.7% from a year earlier. That was worse than the 10.7% decline reported in January and the biggest decline so far for the monthly index, which was first published in 2001.

* The 10-city index has a longer history. It declined 13.6% year-over-year. That was worse than the 11.4% drop in January and the worst since S&P started tracking in the late 1980s.

There's no bottom yet, but real estate in the US is getting closer to a long term buy. Keep watching and try to time the juncture of low interest rates with the fall in prices. Those that do, will have stories they can tell their children.

[GRG55]

Re: good overview of current news April 29, especially new Case/Schiller numbers

There's no bottom yet, but real estate in the US is getting closer to a long term buy. Keep watching and try to time the juncture of low interest rates with the fall in prices. Those that do, will have stories they can tell their children.

If there is the potential for a secular rise in long term interest rates at some point in the next couple of years [bond investors finally start to fear inflation] couldn't that be the trigger that leads to a final collapse and bottom in home prices?

As long as mortgage rates remain low doesn't it just keep propping home prices above what should be the market clearing price?

[jtabeb]

Re: good overview of current news April 29, especially new Case/Schiller numbers

If there is the potential for a secular rise in long term interest rates at some point in the next couple of years [bond investors finally start to fear inflation] couldn't that be the trigger that leads to a final collapse and bottom in home prices?

As long as mortgage rates remain low doesn't it just keep propping home prices above what should be the market clearing price?

That's my take as well.

[WDCRob]

Re: good overview of current news April 29, especially new Case/Schiller numbers

As long as the price declines are accelerating, I'm steering clear. Maybe when the slope of the fall starts to flatten out?

Last four months in DC (after many months of <1% declines):

-1.6%
-2.4%
-2.5%
-2.8%

In my price range I'm reducing the size of my eventual loan by about $15k/month right now (combined cash saved and declining price) by waiting.

Assuming interest rates stay low at least through the election, next winter is looking pretty good - hard to believe another 15-20% off the top isn't getting you near enough to the bottom that a long-term purchase doesn't start to make sense.

[zoog]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Last night I uploaded a couple of my long-term Case-Shiller housing charts to the photoplog. This is the "inflation"-adjusted one, but in either case, I don't see a bottom happening anytime soon.



Also, here's my latest update on the drop-from-peak chart of the twenty cities that Case-Shiller tracks.

[c1ue]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Don't forget the overshoot on the way down.

Basically unless you've got enough to pay cash for a home now, it just isn't worth even bothering.

As for long term wealth - you've got to have both enough cash to buy at least 5, plus the cash to carry these homes for 5 years or more (property taxes, maintenance, etc).

Otherwise no point.

[jimmygu3]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Don't forget the overshoot on the way down.

Basically unless you've got enough to pay cash for a home now, it just isn't worth even bothering.

As for long term wealth - you've got to have both enough cash to buy at least 5, plus the cash to carry these homes for 5 years or more (property taxes, maintenance, etc).

Otherwise no point.

I'm not arguing when the bottom will come, although I have gone on record saying that it will come in '09. But whenever it comes, it will be at a time of great pessimism about real estate, when carrying costs come back into line with rents, and contrarian investors will see the opportunity.

Assuming continued access to credit for those with excellent credit histories, I see no reason why you would pay cash for a home if your rental income will more than cover your mortgage and expenses. The individuals and corporations with access to credit at the bottom will be in the catbird seat. Of course, those with millions in cash will, too. But I would rather buy five houses with 80/20 financing than just one for cash.

Another scenario is that the bond market wakes up and mortgage rates go sky high. Prices will drop dramatically and those with cash will pick up bargains at the bottom. Then as rates ease, prices will again begin to ascend. The transfer of wealth from the middle class back to the ultra rich will be complete and they can begin selling the same houses back to us at huge profits.

[ax]

Re: good overview of current news April 29, especially new Case/Schiller numbers

As long as the price declines are accelerating, I'm steering clear. Maybe when the slope of the fall starts to flatten out?

Last four months in DC (after many months of <1% declines):

-1.6%
-2.4%
-2.5%
-2.8%

In my price range I'm reducing the size of my eventual loan by about $15k/month right now (combined cash saved and declining price) by waiting.

Assuming interest rates stay low at least through the election, next winter is looking pretty good - hard to believe another 15-20% off the top isn't getting you near enough to the bottom that a long-term purchase doesn't start to make sense.

Auctions are failing at an all-time high. RealtyTrac estimates that 40% of homes on the market will be 'bank-owned" soon. How will anybody be able to sell a house in that environment? Even though I assume the itulip bunch is a relatively affluent one, I know I'd still need to get out of my house first before investing in a new one, even to create the scenario you describe above.

[jtabeb]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Auctions are failing at an all-time high. RealtyTrac estimates that 40% of homes on the market will be 'bank-owned" soon. How will anybody be able to sell a house in that environment? Even though I assume the itulip bunch is a relatively affluent one, I know I'd still need to get out of my house first before investing in a new one, even to create the scenario you describe above.

Hence the term "NET" assets, most people don't figure their mortgage when calculating their net worth, that's a big booboo. You should allways have enought cash to pay off you house today! (doesn't mean you would, just that you could)

[jimmygu3]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Hence the term "NET" assets, most people don't figure their mortgage when calculating their net worth, that's a big booboo. You should allways have enought cash to pay off you house today! (doesn't mean you would, just that you could)

Another good rule of thumb is to have enough money in the bank to live off of the rest of your life.

[WDCRob]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Here in the real world...

I'm interested in buying a home I'll live in for at least ten years, I find myself among the 99%+ of the population who is unable to pay cash even if I wanted to and I'm currently renting, so don't have to worry about selling before I buy.

[ASH]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Even though I assume the itulip bunch is a relatively affluent one, I know I'd still need to get out of my house first before investing in a new one, even to create the scenario you describe above.

My demographic probably doesn't represent a large portion of the iTulip community -- nor the real estate market in general -- but I and almost all my friends from graduate school are waiting on the sidelines to buy our first homes. We all got out of school in the 2003-2005 timeframe, saw that there was a real estate bubble, and started praying for a crash. Hence, basic affordability and the availability of credit are the main issues driving our timing, rather than the ability to divest existing properties.

SantaFe2 and the eminent GRG55 both mention mortgage rates. I think GRG55 and jtabeb are right that if, in the iTulip scenario, high inflation is on its way, then the absolute bottom of the housing market should coincide fairly closely to the inability of potential buyers to get affordable mortgages -- and from the perspective of an investor in real estate, that timing probably makes a lot of sense. However, speaking as a 33-year-old renter who will most likely need to take out a mortgage, my timing will more closely resemble that proposed by SantaFe2. I'm not optimizing price -- I'm optimizing price and mortgage rate.

[Ed]

Straight line fits, extrapolations (possible) of housing data series!!!

in progress:

This page will be linked to from just after the last chart in the page
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
The content below is follow-on elaboration of content in that page. For the three real S&P/Case-Shiller Home Price Indices in that last chart, an index’s difference from its inferred "WILL return to" level (54., 49.4, 43.5) is here called “mispricing”. Mispricing, as percent of total price, for the three real indices is charted here.

[GRG55]

Re: good overview of current news April 29, especially new Case/Schiller numbers

My demographic probably doesn't represent a large portion of the iTulip community -- nor the real estate market in general -- but I and almost all my friends from graduate school are waiting on the sidelines to buy our first homes. We all got out of school in the 2003-2005 timeframe, saw that there was a real estate bubble, and started praying for a crash. Hence, basic affordability and the availability of credit are the main issues driving our timing, rather than the ability to divest existing properties.

SantaFe2 and the eminent GRG55 both mention mortgage rates. I think GRG55 and jtabeb are right that if, in the iTulip scenario, high inflation is on its way, then the absolute bottom of the housing market should coincide fairly closely to the inability of potential buyers to get affordable mortgages -- and from the perspective of an investor in real estate, that timing probably makes a lot of sense. However, speaking as a 33-year-old renter who will most likely need to take out a mortgage, my timing will more closely resemble that proposed by SantaFe2. I'm not optimizing price -- I'm optimizing price and mortgage rate.

ASH: I was in a very similar situation to yourself after I graduated and began working. Being in the petroleum industry, early in my career came the resource industry bust and the severe housing downturn in the petroleum headquarter cities of Calgary and Houston that accompanied that event.

I cannot speak for the details in Houston, but I do think the details of what happened in Calgary are useful to put in context what is happening on a larger scale in the USA today. The slowing economy and rising unemployment started the downward spiral in housing (1980). Rising interest rates (courtesy of Volker and his Bank of Canada counterpart) accelerated the fall (1981). But the thing that nailed the coffin shut was when the banks started refusing to lend or renew mortgages at any interest rate (1982). It's not just the price of credit that's key, but the availability is even more important. Housing continued to fall in price until the bottom (at which point houses were trading well below replacement cost) in January 1986. By then, however, the banks had long worked off their bad loans, interest rates were well below their peak and falling, credit was again available, and the market started a slow recovery. At one point the government came out with a taxpayer "Homebuyer" subsidy program. Everyone thought that marked the bottom as prices stopped falling. But it proved only momentary and prices fell for another 4 years despite the governments best efforts. People who got sucked in on that "free" government money lost big. My wife and I bought a home in one of Calgary's loveliest neighbourhoods in late 1988 that we simply could not have been able to afford, or even imagine owning, under any circumstances in 1981.

The danger for someone like yourself is to be too anxious and buy too soon. It may not play out exactly the same way this time, but I bet it's not too dissimilar. iTulip expects a USA national bottom is still perhaps 3 years away. Local markets will undoubtedly vary somewhat. Even then the recovery will be slow so you will have plenty of time to make the right decision, provided you are patient.