Market Playground

By Steven Hansen

Steven Hansen

Fact: The Case-Shiller Home Price indexes declined in November 2010.

There are a lot of pundits out there discounting the fall in the Case-Shiller home price index for November 2010. They say that Novembers are slow winter months, and real estate values tend to fall in the November.

Fact: The non-seasonally adjusted Case-Shiller 20 City Composite was never down between October and November from 2000 through 2005. It has been down between October and November from 2007 onwards. That is not to say there is not a winter headwind in home prices – but before the housing bubble burst it was usually not strong enough to push home prices negative.

Case-Shiller is not the only index in decline. The National Association of Realtors, CoreLogic, and Altos Research indexes tell the same story.

Each index uses a different technique.  Explanations vary why the prices fell in November.

CoreLogic: “We’re continuing to see the influence of seasonal declines that typically depress home prices during the latter part of the year, but the fact that the rate of decline increased for November is indicative of the uphill battle we’re facing with the housing recovery,” said Mark Fleming, chief economist for CoreLogic.

Case-Shiller: “With these numbers more analysts will be calling for a double-dip in home prices. Let’s take a moment to define a double-dip as seeing the 10- and 20-City Composites set new post-peak lows. The series are now only 4.8% and 3.3% above their April 2009 lows, suggesting that a double-dip could be confirmed before Spring. Certainly eight cities setting new lows, and with the only positive news concentrated in southern California and Washington DC, the data  point to weakness in home prices,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

NAR: [editors note - NAR's data reflects December home prices] Lawrence Yun,  chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

Altos Research: [editors note - Altos Research's index reflects December home prices] In December 2010, home prices, once again, were off across the country. This month’s changes, however, were in line with expectations during this period of the year. The data reflect seasonal trends and will likely begin to increase modestly as the “boom” of the spring real estate market begins. Several markets were relatively flat, with the steepest declines posting in San Francisco, down 4.77% from last month.

As Altos Research leadsthe pack, they have two factoids to keep in mind.  The first is that the asking prices for homes are on a downward trend.

The second is what appears to be an normal inventory spike.  According to Altos Research:

Inventory (orange line, right axis) is showing an up-tick in this week’s data. Sellers on the market are subsequently responding with a flattening in the number of homes on the market with price reductions in the last 90-day period (black line, left axis). History tells us that the inventory count hits a trough in January each year, so we may have hit that trough this week.

Altos Research went on to conclude:

Higher inventory means increased competition among sellers which can lead to downward price pressure. (Remember what we saw in our January 2011 National Housing report with the Price of New Listings falling off a cliff?)  Demand is the mitigating factor here.  If there are enough buyers in the market to absorb the increased inventory, price reductions will be muted.  We saw this in real time during the 2009-10 tax credit years.  More buyers means less pressure on sellers to take price reductions.

The USA could be on track for a second seasonal dip as seen in the last two winters.  This winter the dip could go below April 2009 prices and become a true double dip for the cycle. (Econintersect is in this camp.)  Finally, NAR optimism could be rewarded and there could be a pause in home price decreases.  NAR should remember that one month is not a trend.

Steven Hansen is the Co-founder and Publisher of Global Economic Intersection