Double Dip In Housing…Doh!!

From CNBC via Memeorandum;

This is really bad news for those of us in the building trades. Even in the “second home” market, building has fallen off considerably. Even remodeling has slowed way down. The glut in the market is in the median priced homes, where people who bought more house than they could afford are being foreclosed on.

U.S. single-family home prices dropped in March, dipping below their 2009 low, as the housing market remained bogged down by inventory and weak demand, a closely watched survey said Tuesday.


The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.2 percent in March from February on a seasonally adjusted basis, in line with economists’ expectations.

The price index was below the low seen in April 2009 during the financial crisis. The glut of houses for sale, foreclosures, tight credit and weak demand have kept the housing market on the ropes even as other areas of the economy start to recover.

The 20-city composite index was at 138.16, falling below the 2009 low of 139.26.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” David Blitzer, chairman of the index committee at S&P Indices, said in a statement. “Home prices continue on their downward spiral with no relief in sight.”

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Eight cities fell 1 percent or more in March, while Washington was the only city where prices increased on both a monthly and yearly basis. Prices in the 20 cities fell 3.6 percent year over year, topping expectations for a decline of 3.3 percent.

“The declines sustained in the last 12 months have almost erased the gains of the previous 12 months. The housing market is treading backward, but not drowning,” said Cary Leahey, economist and managing director at Decision Economics in New York.

In the first quarter, the national index fell 1.9 percent on a seasonally adjusted basis, compared to a decline of 1.8 percent in the previous quarter. On a non-adjusted basis, they fell by 4.2 percent in the quarter. Nationally, home prices are back to their mid-2002 levels, the report said.

Blitzer told CNBC that the decline in prices, though fairly widespread, has become more prevalent in geographic pockets—the Southwest and Southeast as well as the Michigan and Ohio manufacturing regions.

“What we’ve seen over the last few months despite the decline in prices is we’ve gone back to the old ‘location, location, location’ story instead of everything going down at once,” he said. “California has clearly broken out of the pattern it was in, which is a big plus.”

Though there had been hopes in the industry that prices were troughing and ready to turn higher, the latest trends show little hope in sight until later this year or early in 2012, he added.

“Everybody’s now keeping their fingers crossed for 2012 and wondering whether people just don’t want to own homes anymore,” he said.

On a non-adjusted basis, they fell by 4.2 percent in the quarter.

Of course, the WSJ has a different take on it. Basically, the author is saying that people either have high expectations of what the housing market is going to do, or they have low expectations. I can only go by what I see in our local market and it aint pretty.

Expectation can affect in a positive or negative way the economic reality.  Keynes refers to this “naive” confidence as the “animal spirits”.  False expectations that appear real can misdirect consumer mood and behavior.

Home values are a component of the personal wealth and greatly affect the economy’s consumer and housing sectors. When the price of houses increase, consumer sentiment increases and also the consumers’ ability to draw from a much improved home equity.  This boosts spending, creating new demand for goods and services.

Housing prices increase also boost homebuilder confidence and encourage new construction starts, creating new demand for labor and goods. On the other hand, weakness in house prices have a reverse effect on consumer and housing sectors overall.

As a result, an accurate home price index that has a significant impact on the consumer or homebuilder sentiment is much needed. The S&P/Case-Shiller Home Price Indices self-portrait is a reliable and consistent benchmark of housing prices in 10 to 20 major metropolitan areas. It measures the average home price change between arm-lengths repeat sales of single-family home in a particular metropolitan area.

The S&P/Case-Shiller Home Price Indices for May showed continual strength during spring. The unadjusted composite 10-index surged 1.2 percent in May, following a healthy 0.7 percent increase for the previous month.  However, RealtyTrac reported Bank repossessions (REOs) hit a record monthly high for the second month in a row in May, with a total of 93,777 U.S. properties repossessed by lenders during the month—an increase of 1% from the previous month and an increase of 44% from May 2009. All 50 states posted year-over-year increases in REO activity.

Distressed real estate properties will keep prices down. Foreclosures count for almost 30 percent of the all home sales. This is in contrast with the S&P/Case-Shiller Home Price indicators that show price increases or at most price stabilization. These home price indicators are distorted because the index methodology, in this case, weighs down or eliminates data points associated with distressed property sales.

Distorted home price indicators can adversely affect the consumer by increasing expectations of a stabilized housing market. If these false expectations do not become reality, the result will be consumer fear. Managing expectations is an important factor in macroeconomics.

S&P/Case-Shiller indicates that the indices accuracy depends only on the accuracy of its data. However, in addition to the input data, initial assumptions are a very important factor in representing systems’ performance and reflecting conditions that need analysis.

Once assumptions are established, the system boundaries and state are confined and the output performance data represent that system-state performance. Therefore, selecting different assumptions can provide different results. When assumptions are far from real market condition, even with accurate input data, the results will misrepresent the analysis intend.

The S&P/Case-Shiller Home Price Indices methodology introduces assumptions to control data quality for the collected sale prices.  The intent is to avoid introducing in the analysis of home prices anomalous prices or idiosyncratic price changes

Update; Danny Butcher writing at Pundit Press has more.


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