Posts Tagged ‘home prices’

Woohoo! The April S&P/Case-Shiller Home Price Indices showed a monthly increase* in home prices for the first time in eight months today.

On a month-over-month basis, the 10- and 20-City Composites were up 0.8% and 0.7% in April versus March. The chart below illustrates the annualized returns of the 10-City and the 20-City Composite Home Price Indices.  In April 2011, the 10-City and 20-City Composites recorded annual declines of -3.1% and -4.0%, respectively.

Oh wait a minute, there is an asterisk* to address before we can get excited about positive news in housing.

“In a welcome shift from recent months, this month is better than last - April’s numbers beat March,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather."

Ugh. Mr. Blitzer is a bucket of cold water (rightfully so).  Why does distinguishing between seasonally adjusted and non-seasonally adjusted data matter? Because Case-Shiller recommends using non-seasonally adjusted data, citing it as the more reliable indicator.  This is the last guidance S&P shared on the topic:

"Economic data which are affected by the time of the year, or the seasons, are often adjusted to remove these effects to make it easier to identify underlying changes in the economy. Seasonal adjustment increases the unadjusted values in weak months and decreases the unadjusted values in strong months to eliminate regular seasonal patterns while leaving the underlying trend unaffected. For the S&P/Case-Shiller Home Price Indices, S&P reports two data sets – before seasonal adjustment and seasonally-adjusted. In some recent reports the two series have given conflicting signals, with the seasonally-adjusted series rising month-over-month and the unadjusted series declining. After reviewing the data, the S&P/Case-Shiller Home Price Index Committee believes that, for the present, the unadjusted series is a more reliable indicator and, thus, reports should focus on the year-over-year changes where seasonal shifts are not a factor. Additionally, if monthly changes are considered, the unadjusted series should be used."

Plain and Simple:    The headline many news editors will write, "Home Prices See First Increase in Eight Months",  is based off the monthly, non-seasonally adjusted data. That seems like a glimmer of good news for housing, especially after one remembers that S&P told us to focus on the non-seasonally adjusted data, but Mr. Blitzer wants us to contain our excitement until a new trend develops that confirms a home price stabilization. We need to see progress on a monthly basis and we need it to show up in annual comparisons as well. This is because seasonal adjustments tend to decrease unadjusted values in strong months to eliminate regular seasonal patterns, such as nice weather. So what Mr. Blitzer is basically telling us is, "This is a step in the right direction but we don't know if it's gonna last. More positive data is needed to confirm a potential stabilization".

A summary of the monthly changes using the seasonally adjusted (SA) and non-seasonally adjusted (NSA) data can be found in the table below.  Looking closer,  one can see why Mr.Blitzer is skeptical of the month-over-month improvement. In both the 10- and 20- city indexes, there is a 0.8% difference between non-seasonally adjusted data and seasonally adjusted data.  In only 5 metro areas did the seasonally adjusted figure outperform the non-seasonally adjusted figure.  This makes it clear that seasonal adjustments do tend to decrease the unadjusted index values in strong months.

Of course we're discussing the Composite Indexes when we should be breaking down the data by individual locations. 

Excerpts taken from the release..

• As of April 2011, 19 of the 20 MSAs and both Composites are down compared to April 2010.
• From their 2006/2007 peaks, six of the 20 MSAs showed new index lows in April:  Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa.
• Thirteen of the markets rose in April over March, with six of them increasing by more than 1.0%.
• While 13 markets rose on a monthly basis, 16 markets saw their annual rates of change fall deeper into negative territory.
• Minneapolis was the only city that demonstrated a double-digit annual decline, -11.1%.
• Washington D.C. continues to be the only market to post a year-over-year gain, at +4.0%. Plus D.C. saw a +3.0% monthly increase
• With respective index levels of 100.36 and 101.95, Phoenix and Atlanta are two markets that are close to losing any value gained since January 2000.
  
• As of April 2011, Cleveland, Detroit and Las Vegas are the three markets where average home prices are lower than where they were 11 years ago.

The table below summarizes the results for April 2011...

Mr. Blitzer summed up the findings of the report nicely when he said, "For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”

That leaves us to ponder over the million dollar question: Have home prices finally hit bottom?

Nationally, housing faces a long road to recovery, but not all markets are equal. While areas with a high concentration of distressed properties are clearly stuck in a deflating environment, some communities will see price stability.  It's all based on local and regional economies. Where are jobs being created? Where are the best schools? Where is value being created by the community? Where do buyers want to live? This is where the housing recovery can build momentum. Of course you need to be in the right financial situation to even be asking these questions. That's another problem all together. Tight credit demands from lenders combined with damaged borrower credit profiles (and a lack of reserves) implies buyer demand will lag the broader economic recovery, which is lagging itself.  Finding a bottom in the hardest hit areas is another story. Here, the GSEs, FHA, and major banks must manage their REO inventory carefully. In these areas, home prices remain highly-sensitive to even the smallest of shocks in buyer sentiment, such as the premature release of shadow inventory. It's gonna be a tight-rope walk. Step 1 is stopping the negative feedback loop.

ABOUT: The indices, which are billed by S&P as the leading measure of U.S. home prices, are constructed to track the price path of typical single-family homes in a number of metropolitan statistical areas (MSAs).  The study uses matched price pairs of individual houses to construct a 20-City Composite Index and a 10-City Composite Index which are updated monthly. The indices have a base value of 100 which was set in January 2000.  Thus a current index value of 150 indicates there has been a 50% appreciation since that date for a typical home in the subject market. To be eligible to be included in the home price indices, a house must be a single-family dwelling. Condominiums and co-ops are specifically excluded. S&P Indices does publish some separate, supplemental indices for condominiums. Houses included in the indices must also have two or more recorded arms-length sale transactions. New construction is excluded.

The Census Bureau and Department of Housing and Urban Development have released New Residential Sales data for April  2011.

New Residential Sales data provides statistics on the sales of new privately-owned single-family residential structures in the United States. Data included in the press release are (1) the number of new single-family houses sold; (2) the number of new single-family houses for sale; and (3) the median and average sales prices of new homes sold.

A house is considered sold when either a sales contract has been signed or a deposit accepted.   Included in our estimates are houses for which a sales contract is signed or deposit accepted before construction has actually started; for instance, houses sold from a model or from plans before any work has started on the footings or foundations.  These estimates also include houses sold while under construction or after completion.  This survey does not follow through to the completion ("closing") of the sales transaction, so even if the transaction is not finalized, the house is still considered sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits.

New residential sales estimates only include new single-family residential structures. Sales of multi-family units are excluded from these statistics.

Here is a Quick Recap from Reuters...

• RTRS - US APRIL SINGLE-FAMILY HOME SALES 323,000 UNIT ANN. RATE (CONS 300,000) VS MARCH 301,000 (PREV 300,000)
• RTRS - US APRIL SINGLE-FAMILY HOME SALES +7.3 PCT VS MARCH +8.3 PCT (PREV +11.1 PCT)
• RTRS - US APRIL HOME SALES NORTHEAST +7.7 PCT, MIDWEST +4.9 PCT, SOUTH +4.3 PCT, WEST +15.1 PCT
• RTRS - US APRIL NEW HOME SUPPLY 6.5 MONTHS' WORTH AT CURRENT PACE, LOWEST ONE YEAR, VS MARCH 7.2 MONTHS
• RTRS - US APRIL MEDIAN SALE PRICE $217,900, +4.6 PCT FROM APRIL 2010 ($208,300)
• RTRS - US HOMES FOR SALE AT END OF APRIL RECORD LOW 175,000 UNITS VS MARCH 180,000 UNITS

Excerpts from the Release....

Sales of new one-family houses in April 2011 were at a seasonally adjusted annual rate of 323,000.  This is 7.3 percent (±16.6%)* above the revised March rate of 301,000, but is 23.1 percent (±9.7%) below the April 2010 estimate of 420,000.

The median sales price of new houses sold in April 2011 was $217,900; the average sales price was $268,900. The seasonally adjusted estimate of new houses for sale at the end of April was 175,000. This is a record  low for new home inventory. Still, at the current pace of New Home Sales, it would take 6.5 months to clear that inventory.

Since we've been repeating ourselves when it comes to offering insight on the underlying fundamentals of record low New Home Sales numbers, we'll share some perspective from Wall Street economists.

From Reuters Instant View.....

RICHARD DEKASER, ECONOMIST, THE PARTHENON GROUP, BOSTON

"It's a positive surprise. Sales activity continues to bounce along the bottom. There is no evidence of a second leg down for housing, but there is no persuasive evidence of a rebound. This won't significantly alter lenders' behavior. The inventory of homes is at extreme scarce levels against the backdrop of a glut of existing homes. This is auguring well for future building activity. When does this happen? It's already happening, but you need a microscope to discern."

DAVID ADER, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:

"A bigger than anticipated gain to new home sales and a price gain (against three prior months of negative figures) so a firmer, if volatile, report."

MICHAEL GAPEN, SENIOR U.S. ECONOMIST, BARCLAYS CAPITAL, NEW YORK, NEW YORK:

"Certainly this was a better-than-expected report, but at the same time I am hesitant to read too much into it. Total home sales remain well below their longer term healthy levels, but nevertheless it is above the 286k average pace observed in the first quarter. "The lower activity in homes sales early in Q1 was largely due to adverse weather so it makes sense that we are seeing a rebound from those levels. Another positive is the supply of homes fell. If the months' supply drops to 4 months that would be pre-crisis levels, so even at the low level of sales, inventory is quite lean and so at some point the home builders will have to get out and start building again."

MICHAEL YOSHIKAMI, PRESIDENT AND CHIEF INVESTMENT STRATEGIST AT YCMNET ADVISORS IN WALNUT CREEK, CALIFORNIA

"I don't think there's much to make of this. There's still a tremendous overhang in the housing market, and while new home sales are starting to percolate, that doesn't change the fact that we still have such huge inventory. But since the number was about in line with expectations, investors will be focused on such other issues as Europe or corporate news."

GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

"It's a good number, better than expected. It suggests maybe we're beginning to see some signs of stabilization in housing, but it's too early to say we've bottomed out. We still have a lot of existing homes for sale and that excess inventory is likely to hang over the new home market for the better part of a year. And home builder sentiment remains very negative. It does not look as if builders feel we have turned the corner yet."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"Home sales were stronger than expected but that's not saying much, given that the level is still low. But it's encouraging in the sense that it was broad-based across regions and it pulled the inventory of homes downward."

PATRICK NEWPORT, ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

"The caution note is that this release tends to be volatile. The number is still good but it is flat at the bottom. Builders are having less problems selling their homes. It's too early to say we are at a turning point for housing. You have to wait three to four months of positive months before you can say things are getting better."

LINDSEY PIEGZA, ECONOMIST, FTN FINANCIAL, NEW YORK

"We did beat consensus, which certainly is a positive spin to this report. On the other hand, if you look at a chart of new home sales we really haven't gained any ground since the end of 2009. We're not losing any ground here but we're not making any positive headway. Demand is still tepid. Consumers are still struggling to make their monthly payments. We're still dealing with the same negative overhangs we've been dealing with for quite some time. "The market really doesn't read into housing like it used to because it doesn't mean what it used to in terms of supporting the economy and supplementing income. Unless we saw a very clear improvement in trend or decline in trend I don't think the market's going to respond to a housing report."

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:

"New homes sales, just like every other housing indicator, has been on a roller coaster ride for 2011--rising for the past two months after having fallen in the two prior. The alternating patter will most likely persist for the rest of year. Every region experienced sales gains helping to push down the number of new homes available for purchase to 175k --a record low-- and the months' supply of homes down nearly 10% to 6.5%. The inventory breakdown is a double-edge sword as the lighter stock means sales are correcting backlogs, but the low numbers also show the damage still prevalent in the market given builders' adversity toward constructing homes no one is going to buy--especially given the price premium over previously-owned homes."

The January S&P/Case Shiller Home Price Indices, released by Standard & Poor's this morning, show further deceleration in the growth rates of home prices in most of the cities in the survey. 

The indices, which are billed by S&P as the leading measure of U.S. home prices, are constructed to track the price path of typical single-family homes in a number of metropolitan statistical areas (MSAs).  The study uses matched price pairs of individual houses to construct a 20-City Composite Index and a 10-City Composite Index which are updated monthly. The indices have a base value of 100 which was set in January 2000.  Thus a current index value of 150 indicates there has been a 50% appreciation since that date for a typical home in the subject market.  

The 10-City Composite was down 2.0 percent to 154.65 and the 20-City was 3.1 percent below the previous year's level at 140.86. Both composites were down about 1 percent from December figures. 

“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20-City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now."