Case-Shiller index: More evidence for Tampa home price stabilization?

The S&P Case-Shiller home price index shows Tampa Bay home prices declining 21.3 percent from April 2008 to April 2009.

Normally we don't pay much attention to month-by-month price changes, but it's worth quoting the figure this time. Local home prices fell only 0.7 percent from March to April, an annualized rate of 8.4 percent. From February to March prices plunged 2.7 percent, Case Shiller said.

Combining data from Case-Shiller, Realtors and other real estate companies, the price stabilization trend seems unmistakable through April and May. The big question for us is whether the flattening will continue or whether rising interest rates and foreclosures will smear more grease under the skids.

Tampa Bay was tied for 7th worst on the 20-city index. Phoenix home prices crash and burned at -35.3 percent. Las Vegas wasn't much better at -32.2 percent. Once again, Miami felt more pain than we did. Its home prices fell 27.3 percent.

Two upper Midwest trouble spots were Detroit and Minneapolis, where home values fell 25.4 percent and 22.1 percent respectively.

Comments

[Lila]

Houses are still overpriced and we need to get over ourselves. Buy one if we need one and more importantly, if we can afford one, not because a bank or a realtor/broker offers access to no doc loans. I am surprised there were not more criminal indictments. People know what they can afford and of course so do the lenders and the middlepersons. None of this is news, but the idea that things are evening out is a bit premature. I truly hope we never see the jumps we saw in home values and that we all become more responsible. People who move here thinking it is cheaper and create havoc in developments because they will not follow the rules and cease to pay their fees (a real estate agent in my condo association does exactly that)...need to go back to wherever it is they came and leave the rest of us alone.

[bobby]

Some houses are over-priced, some are priced very well. Doesn't this happen in all markets?

[Fuzzy Bear]

"The big question for us is whether the flattening will continue or whether rising interest rates and foreclosures will smear more grease under the skids."

I believe the worst is over in terms of large price declines and only small declines are in the future providing interest rates do not go much higher.

[Jonathan]

What is the historic context for the March to April price change? Traditionally, the market improves with the summer weather (at least in most areas of the country) then dips again in fall. Without reference to the seasonal variation and its contribution (or lack of a contribution) to the March to April numbers you really can't make any conclusions about what the market is doing. It's not one trend (month to month price decrease), it is several trends superimposed upon one another (seasonal variations in market activity, slumping housing market, others). Focusing on one without referencing the others makes the information much less useful.

[Frank Lee]

Unfortunately, the Shiller index seriously lags in information for the *current* home buyer for several reasons:

- The information is on a macro scale. Home buyers need information accurate to specific neighborhoods. At the very least, on the county level where the same tax rules apply. Pricing in Hillsborough, for example, has been flat since January.

- The information isn't timely. Great for stock investors playing small swings in news, but buyers and sellers need up-to-date information, not something from a full quarter ago.

- Jonathan's point about seasonality... Hillsborough saw small spikes in June and July of last year. This is typical since most moves are made during school breaks. You can relate Shiller's news with previous Realtor reports - just use the figures from a few months ago and use a running average. Eventually, Shiller's loosely correlates what the Realtors gave you much sooner. The "same house" means home resales as opposed to new homes. Resales are what the Realtor's MLS covers.

I can tell you this about pertinent news:

Repeating - last June and July, Hillsborough county saw small price spikes. This year, pricing has been flat since January. If flat pricing continues, you will see VERY negative news reported on a *year-to-year* basis when reports for this summer are made. In Shiller's case, you won't see that until late fall. Right now, jobs and interest rates are the bigger indicators of future demand. Pricing is also closely related to the foreclosures and inventory problems. Foreclosures appear to be subsiding in Hillsborough - albeit slowly. Inventory has also been steadily decreasing, but I'm curious on how the next two months play out as speculators reappear in the mix.

[Tino]

In repsonse to a metro area analysis: "Home buyers need information accurate to specific neighborhoods." - Frank Lee

In response to a zip code/neighborhood analysis: "stop citing your anecdotal microcosm" - Frank Lee

Nothing makes you happy, huh? What a sad, bitter realtor still trying to deny that real estate prices are going down the squatter...

[Fuzzy Bear]

"Unfortunately, the Shiller index seriously lags in information for the *current* home buyer for several reasons:"

The Case-Shiller reports do not lag, they just follow repeat sales of the same property which is the most reliable source of tracking home values.

[Frank Lee]

Case-Shiller uses a subsidiery named MacroMarkets, LLC - who uses a "constantly updated" source (likely people with MLS access, such as realtors) to gather statistics on *home resales*...this is exactly the same methodology reported by your local realtors, you just get the information months faster with realtors. Shiller fancifies the old data with a 3-month moving average "algorithm". Realtors use year-to-year and month-to-month.

If anything, Shiller provides a macro insight for investors of hedge this or stock that. Unfortunately, it comes many months after those on the ground see changes. It certainly provides no insight on a micro level - not even on the county level. For potential home buyers and sellers, it provides little to no negotiation leverage.

"First developed by Karl Case and Robert Shiller, this methodology collects data on single-family home re-sales"

http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,2,1,0,0,0,0,0.html

It's just a fancy way of saying they don't use *new* homes.

"The monthly S&P/Case-Shiller Home Price Indices use the “repeat sales method” of index calculation – an approach that is widely recognized as the premier methodology for indexing housing prices – which uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit."

http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf

Nothing more than a comedy of verbosity.

[Grant]

Many sources - economists, bloggers, Obama Administration, realtors,etc are trumpeting that the worst is behind us for the economy and the housing market. From my point of view, we have not seen the worst of it yet. Few saw this thing coming, so why should they be able to see the end of it?

[Fuzzy Bear]

"Case-Shiller uses a subsidiery named MacroMarkets, LLC - who uses a "constantly updated" source (likely people with MLS access, such as realtors) to gather statistics on *home resales*...this is exactly the same methodology reported by your local realtors,"

That is incorrect as it is nothing like the information reported by the NAR or local RE associations. The source of the Case-Shiller data does not directly come from the NAR or realtor groups. The data feeds come from the clerks office for RE transactions that are recorded.

The data tracked is on repeat sales of properties that provides a clear snapshot of the values over time. The data includes property sales by owner and by realtors whereas the realtor data does not include properties sold by owner. The NAR in the past did not track repeat sales of properties.

The Case-Shiller report is considered the most reliable information on the RE market.

[Fuzzy Bear]

"Nothing more than a comedy of verbosity."

More like nothing more than a repeat of what we discussed a few months back.

[Frank Lee]

Most accurate? Tell me, what does Shiller compute for Westchase? For South Tampa or Brandon? For Hillsborough County?

Their graphs uncannily parallel FAR's wide-scoped MSAs, just with a two month lag. For *local* buyers and sellers, it's nearly useless. If you're a hedge fund investor like Shiller, his well-documented negativity machine is the darling of your portfolio.

[Mary Diaz]

Case-Shiller report is just another tool that we, in the real estate business, use to ascertain value.
Knowing the motivation of the client is always important in the decision making process of pricing the home to sale. However, some sellers still are adamant about their home price and believe their home will sell for more than the home down the street. It is up to us, real estate professionals, to educate, educate and educate. I can never say it enough.

[Tino]

The Case-Shiller index is not constructed to help Grandma price her house that she is selling before she goes into the home. It is to give a more accurate picture of regional housing price movements.

You say a few intelligent things about real estate on this blog, then you drop a bomb like this that makes us all think that you have a sixth grade education. Seriously, you need to stop tilting at this windmill because it is really quite sad.

[Dylan]

It's not going to get better anytime soon. There will be a massive wave of Alt/option arm loans that will reset this year. Thus causing another huge number of foreclosures. People are defaulting on the teaser rates, not to say when they reset. Then to top it off you have massive unemployment that just matters worse for defaults and foreclosures. Home prices will keep falling. If you had to ask me were no where close to hitting bottom. You would have to be stupid to buy house now.

[Paradigm Shift]

For me (an average Joe and active buyer in the TB pipeline, no a expert by any means) there are two "bottoms" to I'm watching.. the home price AND the 30 mortgage APR.. I feel like in the more affluent areas that are higher in demand the price to mortgage APR ratio is getting close to a breakeven point. I've locked in at 4.375% 30 year fixed no points etc.

Everyone has to look at their own situation.. (independence day) .. I believe I will save more money at the current home price & mortgage rate than if I risk rates going up and prices coming down.

Not counting tax savings benefits by owning and looking just at APR's.. I ran some sample numbers over 30 year fixed..

$500k home w/ 20% down ($400k loan) at:
4.375% is $1997/mo = $319k interest
5.375% is $2239/mo = $406k interest
6.375% is $2495/mo = $498k interest
7.375% is $2762/mo = $595k interest

The national averages over the past 3 weeks for 30 year fixed APR's are between 5.3 and 5.7.. If one were to wait it out for the house prices to lower say 5% ($25k) to 10% ($50k) in the next 6 months they could be seeing APR's rise to 6.375% in the same time. That amount in interest alone over the life of the loan would be $179k and it would be less affordable $500 a month wasted. Let's hope we don't see a run on APR's like we saw in the 80's where it reached mid teens.

It does look like the new May '09 Appraisal rules are helping accelerate the home price downward correction given that banks are no longer interested in giving out unreasonable home loans on a whim. I'm sure this will be hem'd and haw'd by realtors and sellers to no end.

Lowball Appraisals Spark Uproar
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/03/AR2009070301194.html

Tick Tock..

[Grant]

You can always refinance into a better rate, when rates come down. You cannot, however, reset principal.

[Paradigm Shift]

At the first sign of recovery inflation and interest rates will go up. The only way it goes lower is if the economy gets worse.

Be careful using blanket statement words like always and never.. nobody knows what the future brings especially with Obama at the wheel who does not consider costs just that he's moving forward his agendas and policies.. we have growing unemployment soon to pass 10% nationally (gubment predicted keeping it below 8%'s max with stimulus funds) and a deficit mountain has far exceeded anyone’s expectations. What does that rosey model they used tell you about their forecasting? 35% less tax revenue in April.. oops! Always remember if it becomes obvious that you had no idea what you were talking about use the blame game as a last resort.

Biden: 'We Misread How Bad the Economy Was'
The vice president says the Obama administration "misread how bad the economy was" but stands by its stimulus package and believes the plan will create more jobs as the pace of its spending gains momentum.
http://www.foxnews.com/politics/2009/07/05/biden-misread-bad-economy/

[Trendline]

We most likely will not see interest rates at their current level for a generation. The last time they were this low was during the Great Depression. It is highly probable they will go up into the double digits - but let’s say you get the house at a lower price. You will likely have to wait possibly for a decade or more to refinance at a single digit rate. In Nov. 1978 fixed 30 year mortgage rates entered the double digits at 10.11%, the rates peaked in Oct. 1981 to 16.45% and did not reach single digits until December 1990 at 9.67%. Would you really save money to wait? We are in a much more serious economic situation now than we were in the late 1970s/1980’s, it is prudent to consider it will take much longer for inflation and mortgage rates to decrease with this economic storm.

[Apartments Barcelona]

With the current interest rates do you think that "buying now" would be the right thing to do.

[Rightsaidmike]

Question for the experts. My 5/1 arm is about to reset in the mid 3% range.
With these arms tied to libor, might there be a larger spread between these products and traditional 30 fixed?
Thanks for your help, Mike K.

[Tino]

"Let's hope we don't see a run on APR's like we saw in the 80's where it reached mid teens."

The one thing that we have learned in this whole debacle is that affordability cannot stay unreasonable for a long period of time before the market corrects.

If APR's reach the teens, then housing prices will be at least 50% below where they are now, and will fall below replacement costs. Housing construction will go to zero, as no one will be able to build a house and sell it at an appropriate level of profit.

If you can only afford $3k/month in housing costs, a massive increase in interest rates is not going to magically increase your housing budget to $5k/month.

[Frank Lee]

That's a fair assessment on the interest, Shift. The NAR has a legitimate gripe on appraisals, however. Naturally, buyers want any additional pricing leverage. Greed? Maybe, but what's *fair*? Using distressed comps on a non-distressed subject is a poor (pardon the use) paradigm. It assumes like conditions of sale and may not be a true comparison.

[California Coastal Real Estate]

It seems if Case is right, now is the time to buy distressed assets in Bulk. I think former RTC Oversight Board President and Tampa Bay local, was barking up this tree a few months back. He is in bulk purchases and sales, looks interesting.

[Paradigm Shift]

Frank Wrote: "The NAR has a legitimate gripe on appraisals, however. Naturally, buyers want any additional pricing leverage. Greed?"

Back when foreclosures and shorts were a minority of the total sales I agree comps should not be impacted by the few bad apples. However, the tables are turning and it will be interesting to see when a majority of home sales are coming from shorts and foreclosures and then what is the market price really?

What is the % of homes sales coming from shorts+foreclosures vs normal non distressed sales today? Will there be a day when the scales tip?

[Frank Lee]

Shift,

That would have to be assessed on a neighborhood-level basis, I think. If a subdivision contains no distressed competition to a pending sale with a willing/able buyer, "normal market" comps should be used.

For example:

Let's say you buy your home today at a typical price.
- Five years later, your kids are out of school and you wish to relocate.
- In the past year, three neighbors have sold their homes at a normal market price.
- Five other neighbors dumped theirs via short/foreclosure at a 40% value in the same year.
- There are no other pending foreclosures in your subdivision.
- An approved buyer makes an offer on your home close to the asking price. You accept. Your broker deposits the earnest in escrow.
- The buyer's lender orders an appraisal...at buyer's expense.
- The appraisal comes in *well below* your price and the price of the neighbors that sold normally earlier in the year.
- The appraiser used the distressed sales as comps.
- You can't lower your price to what the appraisal demands...and inevitably become angry.
- The buyer is also angry because they can afford the home and liked the price. They are now out hundreds of dollars for the appraisal and have to go through the process of recovering their escrow.
- The lender is also not pleased, having spent inequitable time qualifying the buyer and all the paperwork that entails.
- The appraiser still makes the fee, regardless.

Fair?

The other side of the coin is more in league with simple supply/demand economics. If there are other distressed "like" properties for sale, the buyer wouldn't likely be making offers on an "overpriced" non-distressed property.

[Frank Gregoire]

The Tampa Bay area consists of countless sub-markets. For the valuation of individual parcels, it's a mistake to rely on regional data; it must be combed to the particular location or property type.

For instance, while completing an appraisal in north central St. Petersburg, analysis of the data revealed over 35% of the active listings in that area are marketed as "short sales, pre-foreclosure or bank owned". Nearly 50% of the pending sales are in the same category. Within 1.5 miles, the mix is entirely different.

Tracking decline in price and value is much the same. There are areas of Pinellas exhibiting near stable prices and values for the 2nd quarter. The decline, although slowing, is still in effect for other neighborhoods and property classes.

The only countywide trend I've seen is a lower supply.

[Paradigm Shift]

Thanks for your insight Frank. I understand your logic but from what I've personally experienced is that the lenders are extra conservative not wanting to get burned with more upside down loans and people defaulting. I guess the question is are they unjustly driving down the home prices with inexperienced appraisers or are they just being cautious in a inflated market.

[Frank Lee]

Shift,

...great questions. There's an article in there somewhere for a *keen* expository columnist.

I know the lenders are justifiably timid with the risk. I hope they (NAR, appraisers, lenders, regulators, etc.) find a *logical* and fair solution for all sides.

[Paradigm Shift]

Frank wrote "There's an article in there somewhere for a *keen* expository columnist."

I think James is on vacation since the last post was 6/30 and it's 7/8 ;)

Slacker..

[Shakeela]

I feel houses should be more available to minorities and the housing problem would go away because we would all be buying houses.

[Grant]

Tino-

You make an excellent observation about the possible effect of rising interest rates. I totally agree that rising interest rates will cause housing values to decline in lock-step. Which is why I am steadfast in my belief that the argument to buy now because rates are low is just more of the same old from our friendly realtors.

[Fuzzy Bear]

"I totally agree that rising interest rates will cause housing values to decline in lock-step."

I agree that rising interest rates will cause some declines in home values in order to stay in-line with local incomes. I still view the best time to begin looking or purchasing RE will be this fall and into 2010.

[Jack]

Has the author of this thread stopped posting new articles?

[Tino]

"You can't lower your price to what the appraisal demands...and inevitably become angry."

1. Um, why can't you lower your price? If I bought GE stock a year ago at $30/share and it's only going for $11 today, should I get angry or just drop the price and dump it?

2. Here's the solution for the buyer if the price is the "right price": put down more equity. The bank will finance it if it appraises low if the seller puts more skin in the game. Maybe they can get that cash back in the future through a HELOC if it ever appraises upwards.

The number one factor in determining a seller's asking price isn't the location, the number of bedrooms, or the great view. It's what the seller paid for it. Last week, I looked at a house a block from mine -- same square footage, same land, same view, a few upgrades -- and $350,000 higher than what it will appraise at. Why so high, I asked the seller's agent. You can guess the response: "he can't sell it at a loss". Do you wonder why it's been on the market for 2,000 days and counting?

[Fuzzy Bear]

Report on mortgage/financial crimes related to the RE industry.

http://www.fincen.gov/news_room/rp/files/mortgage_fraud.pdf