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March 2012 Case-Shiller Home Price Decline Continues to Moderate

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) for March 2012 (released today) shows a year-over-year decline of -2.6% (versus 3.5% in February). This is the lowest March price index level since 2002.  The market had expected a year-over-year decline of 2.8% to 3.0%.

Case-Shiller home price index has shown the largest year-over-year home price decline of any index for March 2012.  A comparison of all major home price indices follows.

Note: The caveats section at the end of this post has been significantly revised, and worth a read.

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.

The way to understand the dynamics of home prices is to watch the direction of the rate of change – and not necessarily whether the prices are getting better or worse.  Here almost universally – home prices are either improving or becoming less bad – with the National Association of Realtors home prices currently showing obvious price gains.

The question on the table is whether the home price decline is just pausing (and will continue again) – or whether the USA is at or near the bottom of the home price decline.

A synopsis of Authors of the Leading Indices:

Case Shiller’s David M. Blitzer, Chairman of the Index Committee at S&P Indices, sees mixed results.

“While there has been improvement in some regions, housing prices have not turned.  This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.

“The National Composite fell by 2.0% in the first quarter alone, and is down 35.1% from its 2nd quarter 2006 peak, in addition to recording a new record low. The 10- and 20-City Composite mimic these results; also down about 35% from their relative peaks and hit new lows.

“There are some better numbers: Only three cities — Atlanta, Chicago and Detroit — saw annual rates of change worsen in March. The other 17 cities and both composites saw improvement in this statistic, even though most are still showing a negative trend. Moreover, there are now seven cities — Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix — where the annual rates of change are positive.  This is what we need for a sustained recovery; monthly increases coupled with improving annual rates of change. Once we see this on a broader level we will be able to say the market has turned around.

“The regions showed mixed results for March. Twelve of the cities saw average home prices rise in March over February, seven saw prices fall and one — Las Vegas — was flat. The Composites were largely unchanged with the 10-City down only 0.1% and the 20-City unchanged. After close to six consecutive months of price declines across most cities, this is relatively good news. We just need to see it happen in more of the cities and for many months in a row. Since we are entering a seasonal buying period, it becomes very important to look at both monthly and annual rates of change in home prices in order to understand the broader trend going forward.”

CoreLogic’s Mark Fleming, chief economist commenting on its March data, suggests home prices are stabilizing:

This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in house prices.  Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales.

“While housing prices remain flat nationally, in many markets tighter inventories are beginning to lift home prices,” said Anand Nallathambi, president and chief executive officer of CoreLogic. “This is true in Phoenix, New York and Washington, for example, which all reflect higher home price values than a year ago. A continuation of this trend will be good for our industry across U.S. markets.”

Lawrence Yun, NAR chief economist commenting on April 2012 data said the market is improving because the quantities of distressed properties are shrinking:

“It is no longer just the investors who are taking advantage of high affordability conditions.  A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices.  The general downtrend in both listed and shadow inventory has shifted from a buyers’ market to one that is much more balanced, but in some areas it has become a seller’s market.”

“A diminishing share of foreclosed property sales is helping home values.  Moreover, an acute shortage of inventory in certain markets is leading to multiple biddings and escalating price conditions.” He notes some areas with tight supply include the Washington, D.C., area; Miami; Naples, Fla.; North Dakota; Phoenix; Orange County, Calif.; and Seattle.  “We expect stronger price increases in most of these areas.”

Lender Processing Services (LPS) believes, based on their February 2012 data, home prices are beginning to rise.

“Our HPI shows an increase in seasonally adjusted prices this month for the first time since March 2010, and for only the third time in five years,” said Raj Dosaj, vice president of LPS Applied Analytics. “There have been signs of price declines slowing for a few months now, and our estimates for next month are flat to slightly positive. Without a pickup in sales volumes from their current anemic levels, it’s hard to be more optimistic that the market may be nearing the end of its fall.”

“Reasons for caution are clear, as we’ve been here before. Non-seasonally adjusted prices increased for a few months in early 2009, 2010 and 2011 – trends that all ended by summer, after which all the gains – and then some – were lost. As is true this month, those temporary increases were on low sales volumes – about 30 percent lower than at any point since 1998. Furthermore, the inventory of distressed homes remains high, which will continue to put a drag on prices.”

Econintersect publishes knowledgeable views of the housing market.

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. There is some evidence in various home price indices that home prices are beginning to stabilize – the evidence is also in this post. Please see the post Economic Headwinds from Real Estate Moderate.

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. This index is updated through 1Q2012.

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.

With rents increasing and home prices declining – the affordability factor favoring rental vs owning is reversing.  Rising rents are shifting the balance.

Related Articles

All Analysis Blog Articles on Housing Sales and Prices

“While there has been improvement in some regions, housing prices
have not turned,” says David M. Blitzer, Chairman of the Index Committee
at S&P Indices. “This month’s report saw all three composites and five
cities hit new lows. However, with last month’s report nine cities hit
new lows. Further, about half as many cities, seven, experienced falling
prices this month compared to 16 last time.

“The National Composite fell by 2.0% in the first quarter alone,
and is down 35.1% from its 2nd quarter 2006 peak, in addition to
recording a new record low. The 10- and 20-City Composite mimic these
results; also down about 35% from their relative peaks and hit new lows.

“There are some better numbers: Only three cities — Atlanta,
Chicago and Detroit — saw annual rates of change worsen in March. The
other 17 cities and both composites saw improvement in this statistic,
even though most are still showing a negative trend. Moreover, there are
now seven cities — Charlotte, Dallas, Denver, Detroit, Miami,
Minneapolis and Phoenix — where the annual rates of change are positive.
This is what we need for a sustained recovery; monthly increases coupled
with improving annual rates of change. Once we see this on a broader
level we will be able to say the market has turned around.

“The regions showed mixed results for March. Twelve of the cities
saw average home prices rise in March over February, seven saw prices
fall and one — Las Vegas — was flat. The Composites were largely
unchanged with the 10-City down only 0.1% and the 20-City unchanged.
After close to six consecutive months of price declines across most
cities, this is relatively good news. We just need to see it happen in
more of the cities and for many months in a row. Since we are entering a
seasonal buying period, it becomes very important to look at both
monthly and annual rates of change in home prices in order to understand
the broader trend going forward.”

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