Who’s Up, Who’s Down

This report of the S&P/Case-Shiller Home Price Indices points to a few cities seeing some stability, one seeing gains and several where prices remain weak.  Washington DC is the only place where home prices are rebounding and holding on to their gains.  Prices in the capital were up 2.7% in the last 12 months and over 80% from January 2000, long before the boom, the best long term gain.  At the other end of the scale is Detroit where, despite gaining in the last month, you can buy a home for about 68 cents on a year 2000 dollar.  The Motor City story is not the housing boom and bust as much as it is the auto industry bust.

A common question from reporters in the last few months is why Washington home prices have stood up while most others have faded.  The strength of the local economy with the stable economic base provided by the Federal government plus companies and organizations selling to the government or locating in the Washington metro area to be close to the government seem to be a large factor in home prices.  While some people talk about a four, or eight, year cycle in Washington DC real estate driven by changing administrations, there is no evidence in the chart of prices since 1987.  Apparently the government-driven real estate economy remains solid through changing presidential administrations.

Leaving Washington aside, the cities which saw the highest peaks were sunbelt cities: Miami, Los Angeles, San Diego, Tampa and Las Vegas.  Of those, LA and San Diego saw less damage and remain above their recent lows while what we might call  the fearsome foursome all made new lows in February.  One difference is the extent of construction and over-building in the foursome.  Almost anytime I speak with local reporters from Florida, Arizona or Nevada I hear stories of half built and empty homes.  Easy  money and plentiful land were two pitfalls in the housing boom.

Close behind the sunbelt cities are San Francisco and New York where prices at the peak were more than double their January, 2000 levels.   Almost everyone seems enamored of San Francisco, making it the perennially attractive place to move to for most Americans.  The tech boom in Silicon Valley is another plus for Frisco.  New York also saw prices rise in the 2000s decade and is holding on to most of the gains.  Financial services is a large part of the economy and always a big factor in the upper end of the housing markets.  The last two decades were good for financial services and certainly didn’t do any harm to New York real estate prices.

One last comment – while no one and no city escaped the boom, bust and great recession, it was more pronounced in some places than others.  Cities as diverse as Dallas, Denver and Cleveland saw both fewer gains and losses than some others.

20 City Chart & Composite Data

How It Looks from Here

Cut to the chase – another weak, disappointing report from S&P/Case-Shiller Home Price Indices.

Little, if any, good news about housing. Prices down while trends in sales and construction are disappointing. Ten of the 11 metro areas that recorded index lows in January fell further in February. The one exception, Detroit, is 30% below its 2000 price level. What can we find that even seems like “good” news? Well, no double dip, at least not yet.  Although the 20-City Composite is within a hair’s breadth of a double dip, the 10-City has a 1.5 percentage point margin of “strength.”  On the dark side, 14 cities and both Composites have continued to decline month-over-month for more than six consecutive months as of February.

Atlanta, Cleveland, and Las Vegas join Detroit home prices below what their  2000 levels; and Phoenix is barely above its January 2000 level after a new index low. The one positive is Washington D.C. with a positive annual growth rate, +2.7%, and home prices  more than 80% over its January 2000 level.  Other cities holding on to large gains from 11 years ago include Los Angeles (68.23%), New York (65.19%) and San Diego (55.05%)”

Recent data on existing-home sales, housing starts, foreclosure activity and employment confirm that we are still in a slow recovery. Existing home sales and housing starts rose in March, but remain close to recent lows. Foreclosure activity showed decreases in mortgage delinquencies in the fourth quarter of 2010, but are still close to historic highs. The nation and 34 states registered a decline in their unemployment rates for March.

Housing Starts at 549,000 in March – Maybe a step towards working off excess supply

Housing starts in March were 549,000, up from February and better than the Bloomberg survey expectations.  Single family homes were 422,000, also up from February.  But the big picture is still no real progress.  Starts peaked at the beginning of 2006 at an incredible 2.2 million, slide though the end of 2008 to about 500-600 thousand and have sat there ever since.  The received wisdom (meaning I’m not sure where the number comes from but everyone seems to cite it) says that we need about a million new homes built each year to keep pace with family formation, people moving to new neighborhoods, disaster recovery and such.  Add to that the months supply numbers from the National Association of Realtors which tend to stay between 4 in strong markets and 11 in weak markets.  If all this is roughly correct, at some point we should be running out of houses.  Given continuing weakness in prices, we’re not there yet.

Housing Starts Editorial

More seriously, while the economy is improving, the gains are not enough to convince home builders it is time to ramp up investment and construction.   The missing links are stable home prices, lower unemployment and improving consumer confidence.

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