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Here’s the latest romp through all the major data on home prices released in the past month, starting with the November 2009 Case-Shiller numbers just out this morning. What the numbers suggest to us is that home prices will stay in the doldrums for a little while, except in the dangerously volatile California markets. Take a look at the data and decide for yourself…
Case-Shiller Data Show Strong California Growth, Weakness Elsewhere
The Case-Shiller report was mixed, with weakness in the Northeast and Midwest, but strong growth in California, especially the San Francisco Bay Area. Overall, the 20-city composite index showed a November 2009 gain of 0.2% over October. As always, we present the seasonally adjusted numbers, which even out summer-time price increases as well as winter-time declines:
|MoM Change||YoY Change||Date of Max||Change from Max||Prices Last at This
|San Diego Area||1.0%||0.4%||Mar-06||-38.2%||Dec-02||6|
|New York Area||-0.9%||-7.1%||May-06||-20.3%||May-04||0|
Other price indexes presented conflicting data. Drawing on data from conforming loans, the federal government today reported a larger price gain, of 0.7% in November. Meanwhile First American CoreLogic, a firm that analyzes escrow records, claimed that November prices declined 0.2%. The market seems like a sailboat in fluky, light winds, yawning from one direction to the other. Below is a graph of the Case-Shiller data over the past five years:
Are We Headed for Another Big Dip?
Good question! An economist at the Center for Policy and Economic Research just argued that homes are still priced 10 – 20% higher than mid-1990 levels, and that demand will only slacken as retiring baby boomers downsize. We don’t disagree with that analysis, but it’s hard to square with Redfin’s immediate experience. After two months of declining traffic at year-end, Redfin.com traffic began taking big jumps in January, and we also saw a huge, unexpected spike in home-tour activity. Of the offers we presented to sellers in December, 56% were competitive; in Southern California this number was 73%, with competition most fierce for homes below $500,000.
Sales Activity Fluctuating, Buyers are Jittery
All that can change fast. In general, the markets have been jittery, especially since the big dip in home sales reported yesterday. As we predicted in our last newsletter, the number of existing homes that sold in December fell 17%, a widely expected drop due to fatigue from the expiration of the original tax credit deadline. In California, December home sales increased by the same amount that sales decreased nationwide, 17% — which just goes to show that California is in a different market than the rest of the U.S.
Foreclosures Spike Up Again
Regardless of what happens to demand, supply will likely soon increase. According to the National Association of Homebuilders, new housing starts are expected to surge 38% over last year. And foreclosure activity increased 14% in December after government intervention had led to three straight months of declining foreclosures. Both new constructions and bank re-possessions will put more properties on the market, limiting price increases.
Macroeconomic Drivers Mixed
With the market in this much flux, the main drivers for sustained growth will be improvements in employment and consumer confidence, and easy credit. After unemployment eased in November, it increased again in 43 states last December. Just to confuse matters, a few days later consumer confidence improved for the third straight month. So the larger economy is also up and down.
Rates Drop, But Likely Headed Up Again
Credit has eased, surprising most analysts. The average rate on a 30-year, fixed-rate mortgage dropped to 5.15% last week, the third straight week of declines after rates began climbing last month. Most experts think rates will rise or remain unchanged, but nobody thinks rates will fall.
That’s the major news in real estate; if you have local questions, just write back and we’ll do our best to hook you up with an answer. Hopefully you’re having a good new year.