In August, home prices were down on a seasonally adjusted basis. The Case-Schiller Composite 10 City index (C-10) fell 0.18% on a seasonally adjusted basis, and is down 3.55% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) edged down by 0.05% on the month and is down 3.85% from a year ago.
Prices for both indexes rose by 0.2% for the month on a not seasonally adjusted basis (which is how you will probably see most of the reports presented). Of the 20 cities, six were up on the month-to-month basis (SA), and 14 were down. Year over year, though, 18 were down and only Detroit and Washington DC made it into the plus column.
The overall indexes are down 32.23% (C-10) and 31.97% (C-20) from the (4/06) bubble peaks. They set an interim low in May 2009 and rallied into the summer of 2010 before turning down again. The bounce has mostly faded. The C-20 index set a new post bubble low in June, has continued to fall and is now 0.29% lower than in May 2009.
The C-10 has only a little bit more breathing space before setting a new low, up just 1.01% since that interim bottom. The earlier bounce was due to extraordinary government support in the form of an $8,000 tax credit to home buyers.
We also got a second measure of housing prices, the Federal Home Financing Administration index, which measures the prices of homes with mortgages held or backed by the GSE’s. It showed U.S. house prices fell 0.1 percent on a seasonally adjusted basis from July to August. The previously reported 0.8 percent increase in July was revised to reflect no change. For the 12 months ending in August, U.S. prices fell 4.0 percent. The two indexes are thus telling pretty much the same story.
Checking Seasonally Adjusted Numbers
There is a strong seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers. Thus, the numbers you read in this post might be slightly different than the ones you read about elsewhere.
The Case-Schiller data is the gold standard for housing price information, but it comes with a very significant lag. This is August data we are talking about, after all, and it is actually a three-month moving average, so it still includes data from June and July. The spring selling season was a bit of a bust for both new and used homes, and it doesn’t look like the summer went any better.
While the inventory to sales ratio for used homes is down from the year ago record peak of 12.5 months, it is still elevated at 8.5 months (September). I don’t think second leg in the housing price downturn is over, but we are probably getting very close to the bottom.
The first graph (from this source) tracks the history of the C-10 and C-20 indexes. Note that on both indexes we are almost back to the post-crash lows. It seems likely to me that we will set new lows before the second leg down is over.
Still, if you are looking at a house as a place to live, not purely as an investment, it is safe to go ahead and buy. Also, we are talking about the national indexes here, and even the individual city data is for entire metro regions, and as the saying goes, real estate is all about "location, location, location." The national headwinds are not longer so strong as to overwhelm local considerations.
Results by City
Of the six cities that posted month-to-month gains, Washington DC led the way with a 0.99% rise. Chicago was the next best a 0.40% rise on the month, followed by the Twin Cities (Minneapolis/St. Paul) up 0.25%, Boston up 0.22%, and Dallas with a rise of 0.23%.
On the downside, the worst hit were some of the old poster children of the housing decline. Las Vegas rolled craps again, falling 0.87%, and Phoenix showed no signs of rising from the ashes, dropping 0.75. California, which was down hard early but then had a nice bounce is falling back, with San Francisco falling 0.69% and LA down 0.68%. Worst hit of all, though, was Atlanta, down a very sharp 1.74% for the month.
On a year-over-year basis, Detroit was the strongest city by far with a 2.58% rise. The only other city with a year-over-year increase was DC with a 0.19% rise. The cities that managed the smallest declines were Denver, off 1.65%, Boston, down 1.79%, and Dallas with a 1.90% drop.
Worst hit on a year over year basis were the Twin Cities, off 8.58% from a year ago, followed by Phoenix with a 7.74% decline. Portland fell 7.62% while Atlanta was down 6.35% and in Seattle prices are 6.09% lower than last year.
The graph (also from this source) below tracks the cumulative declines for each city over time. If the red bar is shorter to the downside than the yellow bar for a city, it indicates that prices in that city have risen since the start of this year (not year over year).
In every city prices are below where they were in April 2006, but there is a huge variation. Las Vegas is the hardest hit, with prices down 59.83% from the peak, followed by Phoenix down 56.55%. Miami is almost a member of the “half off" club, down 49.80%. Tampa (down 46.37%) and Detroit (down 43.17%) are not far away from joining that rather dubious group.
At the other end of the spectrum, there is just one city that have managed to avoid a double-digit decline; Dallas, where prices are down only 7.15% since April 2006. Only four others are down less than 20%. Charlotte is off 10.77% from the national peak, with Denver right behind it with a 11.30% decline. Boston, off 14.77% and Cleveland down 19.28% fill out the list.
(Note: the percentage declines I am quoting are from when the national peak was hit; the numbers in the graph are relative to that city’s individual peak, so there is a little bit of difference). Also keep in mind that these are nominal prices. While inflation has been low over the past few years, it does add up, so in real terms the declines are much greater.
Since being underwater on your mortgage is a necessary, but not sufficient, condition for a foreclosure to happen, the continued decline in prices of existing homes is not good news for the big banks with a lot of mortgage exposure, like Bank of America (BAC) and Wells Fargo (WFC). In looking at the regional banks, it may be a good idea to first start with those with a lot of exposure to the markets that have seen the smallest year over year declines, and avoid those that are seeing the largest declines.
BANK OF AMER CP (BAC): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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