November 2011 Case-Shiller Sees Falling Prices in Most Cities

Non-seasonally adjusted Case-Shiller home price index (20 cities) for November 2011 (released today) shows a month-over-month decline of 1.3% and a year-over-year decline of 3.7%.  This is the lowest November price index level since 2002, but the November 2011 index level remains higher than the lows seen earlier in 2011.

The market expected a year-over-year decline of 2.0% to 3.2% decline.

All the leading home price indices declined in November. Econintersect will compare all of them in this post, but first the Case-Shiller headlines:

Data through November 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed declines of 1.3% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City Composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October. In addition to both Composites, 13 of the 20 MSAs saw their annual returns decrease compared to October’s data. New York and Tampa saw no change in annual returns in November; while Charlotte, Cleveland, Denver, Minneapolis and Phoenix saw their annual rates improve. At -11.8% Atlanta continued to post the lowest annual return. Detroit and Washington DC were the only two cities to post positive annual returns of +3.8% and +0.5%, respectively, in November. While positive, both cities saw these annual rates fall versus October’s data.

Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index – and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of higher value homes. However, the seasonal downturn began with their August data.

It is interesting that the NAR home price decline flattened between November and December.  It will be interesting to see how the other home price indices will view December 2011.

A synopsis of Authors of the Leading Indices:

Case Shiller’s David M. Blitzer, Chairman of the Index Committee at S&P Indices sees some general weakness in the data.

Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall. Weakness was seen as 19 of 20 cities saw average home prices decline in November over October. The only positive for the month was Phoenix, one of the hardest hit in recent years. Annual rates were little better as 18 cities and both Composites were negative. Nationally, home prices are lower than a year ago. The 10-City Composite was down 3.6% and the 20-City was down 3.7% compared to November 2010. The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.

The crisis low for the 10-City Composite was April 2009; for the 20-City Composite the more recent low was March 2011. The 10-City Composite is now about 1.0% above its low, and the 20-City Composite is only 0.6% above its low. From their 2006 peaks, both Composites are down close to 33% through November.

Atlanta continues to stand out in terms of recent relative weakness. It was down 2.5% over the month, after having fallen by 5.0% in October, 5.9% in September and 2.4% in August. It also posted the weakest annual return, down 11.8%. In addition, Atlanta, Las Vegas, Seattle and Tampa all reached new lows in November.”

CoreLogic’s Mark Fleming, chief economist commenting on its November 2011 data, suggests distressed sales are continuing to put downward pressure on prices:

With one month of data left to report, it appears that the healthy, non-distressed market will be very modestly down in 2011. Distressed sales continue to put downward pressure on prices, and is a factor that must be addressed in 2012 for a housing recovery to become a reality.”

Lawrence Yun, NAR chief economist commenting on December 2011 data said home sales should be improving – but are not – blaming it on several factors.

The pattern of home sales in recent months demonstrates a market in recovery. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.

…… The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future.

Lender Processing Services (LPS) in October 2011 saw a decline of 0.8% month-over-month and 2.7% year-to-date.

LPS HPI average national home prices continue the downward trend begun after the market peak in June 2006, when the total value of U.S. housing inventory covered by the LPS HPI stood at $10.6 trillion. Since that peak, the value has declined 30.1 percent to $7.5 trillion. During the period of most rapid price declines, from June 2007 through December 2008, the LPS HPI national average home price dropped $56,000 from $282,000, which corresponds to an average annual decline of 13.8 percent. Since December 2008, prices have fallen more slowly, interrupted by brief seasonal intervals of rising prices. During this period of more slowly declining prices, the national average price has fallen approximately $26,000 from $226,000.

Econintersect publishes knowledgeable views of the housing market.  Other than the NAR (the cheerleader of the real estate industry), no one is seeing any hard evidence that the general decline in existing home prices is over.

Caveats on the Use of Home Price Indices

The housing price decline seen since 2005 varies by zip code. Every area of the country has differing characteristics. Since January 2006, the housing declines in Charlotte and Denver are well less than 10%, while Las Vegas home prices have declined almost 60%.

Each home price index uses a different methodology – and this creates slightly different answers. However, all are in concert saying that home prices are continuing to decline.

The most broadly based index is the US Federal Housing Finance Agency’s House Price Index (HPI) – a quarterly broad measure of the movement of single-family house prices. This index is a weighted, repeat-sales index on the same properties in 363 metro centers, compared to the 20 cities Case-Shiller. However, this index is updated only through 3Q2011.

The red line is the HPI index divided by the Consumer Price Index (CPI-U). This division approximates chained dollar look at home prices. Home prices remain 20% above their pre-bubble price levels. In other words, home prices need to fall another 20% to get into the price range enjoyed in the 1980′s – before the effects of the Baby Boomer/credit expansion home price bubble.

Recent review of the Fed 2011 stress tests for banks has a new recession scenario that would see home prices decline another 20% from here. It is unlikely that the attempts to complete a bottom here could hold under those conditions.

Econintersect analysis of recession indicators is still not seeing the start of new U.S. recession, however. We can only hope that outlook continues.

One area that has been absent from discussion of home prices recently is the affordability factor. After hearing about how affordable home purchasing had become earlier in the year, the optimism on that front has waned. At the beginning of the year an article at CNN/Money by Nin-Hai Tseng quoted Moody’s Mark Zandi as part of what she wrote:

After declining during the depths of the latest recession, prices for rentals nationwide increased modestly by about 3% in 2010, partly driven by a record number of homeowners looking for new digs after foreclosing on their homes. In Moody’s latest list of rent ratios (which is the price of a typical home divided by the annual cost of renting that home) for 54 U.S. metropolitan areas, 39 fell into the ‘better to rent’ category — roughly the same level it’s been for the past year.

But that may finally be about to change. Moody’s chief economist Mark Zandi expects the trend to reverse this year in many major cities. This would be a positive development, as a healthy housing market typically puts renting and owning at more equal footing.

“By mid 2011 and certainly by end of 2011, buying will be superior to renting in most parts of the country,” Zandi says.

A few factors will be at play. For one, home prices are expected to fall further, with some economists expecting a 15% to 30% drop this year. This might be bad news for household finances and current homeowners fearing that their most prized asset stands to lose more in value. On the flip side, this makes homes more affordable and might finally spur more home sales, especially at a time when the rate of home construction has been the lowest since before the Second World War.

It turns out that home prices have declined of the order of 3% in 2011, not up to 30% suggested just eleven months ago. It is still much more beneficial on a cost basis to rent (national average C-S Comp 20) than to buy, as shown in the graph from Calculated Risk.

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