Case-Shiller Registers the Home Price Rally

Submitted by Rich Toscano on July 28, 2009 - 2:50pm

For the first time in nearly three years, the Case-Shiller index of San Diego home prices increased from the prior month. The index rose .4 percent between April and May, the latest data available.

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Submitted by an on July 28, 2009 - 3:48pm.

Thanks for the fancy charts.

When you have time, can you update the charts in http://piggington.com/shambling_towards_... ?

Submitted by rocket science on July 28, 2009 - 10:38pm.

Anyone care to comment/speculate as to the significance of the "high" end being anything above $398K?
It appears that a year ago it was more like $552K

http://piggington.com/may_caseshiller_hpi

Heck even I think I can 'afford' a house in the top third at these prices.

Lack of activity at the " high" end (which I think many in this discussion group are geared toward) is a contributor, but what does it all mean?????

I think this concept was addressed previously but am too lazy to find the thread.

Saving my pennies for now......

Submitted by SD Realtor on July 29, 2009 - 2:29pm.

You can see from the resounding response that not many people care for data that shows results like this.

Submitted by CUD on July 29, 2009 - 3:01pm.

If shadow inventory was released into market, would it represent much of the total inventory to where it could make an impact in prices?

You mention the shortage of inventory as a component of the uptick in prices, which to me means that they don't represent something small like 5-15% of the total inventory. Is this data that is available?

Submitted by jpinpb on July 29, 2009 - 5:49pm.

We already know we are in a spring bounce. The activity is expected and the price increase is nominal in relation to all the money the government has thrown at this and all the moratoria. Is this the best that we can squeeze and manipulate out of this market? This price increase, in my view, is so forced. But then, the bubble was fake too. I guess that's all we can look forward to from now on. "Fake, fake, fake, fake."

Submitted by patientrenter on July 29, 2009 - 8:37pm.

jp, it's fake in the sense that it's not supported by free market forces. Home prices today are mostly the result of government intervention.

But what's happening is also very real, in the sense that some people are doing very well from the intervention, and others are losing. And the amounts that individuals are gaining or losing are really quite vast compared to other government interventions we talk about. What it going on is not just "on paper", or neutral. Vast amounts of real wealth are being transferred. There are people who have retired comfortably, or will, based on the manipulated prices of RE and the manipulated rules for borrowing. Others will have to spend 5-20 more years working to supplant the losses they have suffered, or will suffer. These losses can occur directly from high home prices they have to pay, or from higher taxes to feed money into RE, or from a loss of the purchasing power of their savings due to future inflation (to bail out home buyers who borrowed and paid too much in real terms and don't want to pay it all off in real terms).

Submitted by jpinpb on July 29, 2009 - 9:31pm.

Yes, the bubble was fake, but those who cashed out and didn't go on a shopping spree, they are set and will retire well. That is real. True. Some people did well. Mostly the big players in the lending industry.

Submitted by SD Realtor on July 29, 2009 - 9:59pm.

Patientrenter I could not agree more with what you said on all accounts. Your synopsis can be/should be extended to more aspects of the overall economy then just real estate.

What is happening is very real. In no way am I advocating that this is a bottom or people should run out and buy. Conversely I think we are all learning the painful truth about where the real power base resides in our country. That free markets were pretty much a mirage, and they were taken advantage of in such a manner that corporate America decided to have a showdown with the government and the government never had a chance. Those who were crowing about buying a home in Del Mar at 1997 prices or similar crash like scenarios are either beginning to see the light or they are hanging thier hats on future catastrophic events.

Personally I have come to terms with the situation. Indeed I do agree that we have alot more foreclosures, alot more toxic loans, a hell of a large crash in the commercial RE market, more unemployment, the list goes on... and you know what, as bad as it will get, our leaders will simply continue to mock us and spend money we do not have. While we will have higher taxes for those who have higher taxable income the real wealth transfer of the rich getting richer will indeed occur. Those who were in charge during the runup are not only still in charge now, but have an even stronger power base.

To be honest, I am not really sure how things are going to pan out with the real estate market. However one thing I am 100% sure of now is the sheer will of our government and the implicit slavery to Wall St.

Submitted by ocrenter on July 29, 2009 - 10:44pm.

prediction

this would be my prediction for over the next year. expect some additional drops at the high end to get down to near or at -40% down from peak. mid-market would go to -45% down from peak. but the low end already hit bottom and might actually see slight increase in pricing.

is it worth the wait for a mid-market home currently at -40% to get to -45% down from peak? probably not.

is it worth the wait for a top-tier market home currently at -30% to get down to -40% from peak? probably worth the wait.

Submitted by patientrenter on July 29, 2009 - 11:11pm.

SDR, I don't see it as a face-off between corporations and the govt, with the govt losing.

Almost any political initiative needs two things to be successful:

1. A broad voter base of support

2. A (usually much smaller) group of people/ organizations who will receive a very concentrated benefit from the initiative

In the case of housing, pushing prices up has succeeded in becoming a permanent and incredibly powerful political force because:

1. Existing homeowners like it that way, and they form a vast majority of active voters across all parties and regions. Most homeowners are incredibly invested in high and rising home prices, far more than almost any other single element of our economic
system.

2. The home buying and lending industries are very large, and the people and companies who make a very good living off a booming home market have tremendous resources at their disposal. They can carpet Washington DC with lobbyists and draft laws like no other industry.

If you were to analyze where each $100 of all that engineered pre-tax gain in home prices goes, I'd guess that about 65-85% goes to homeowners, and the rest goes to the middlemen. But I haven't done my homework on that. It's just a guess. It comes from the idea that, when a home bought for $200,000 in 1996 was sold for $1 million of 100% borrowed money in 2007, the seller gained $800,000, less maybe $60,000 in selling expenses. The mortgage brokers and lenders etc probably took about $20-40K up front, and re-sold the loan to Fannie or Freddie, or wherever. So the seller walked away with at least $700K, and all the middlemen walked away with maybe $100K. That's about 85% of the total profits going to the home seller. I know there's more going on, but I think the 65-85% is a ballpark.

SDR or jp, what do you think of this math?

Submitted by SD Realtor on July 30, 2009 - 2:11am.

I don't know about the math as I am to tired to cope with it. As I have said many a time, at some point in 2003 or 2004 the lenders all knew what was down the road and most in the government knew as well. The implication was that when it all crashed and burned there would be some token lambs and the taxpayers would be on the hook for repayment. The investment in leveraged securities by pretty much all of the domestic infrastructure not to mention a hefty foreign investment component all but insured that when the house of cards fell, there would be no other choice. Pretty much every pension, state and local govt, you name it had significant investments. There was no way out. To be honest I dont think the govt gives a sh-t about existing homeowners investments or equity levels. To the contrary I feel as if the govt would rather that homeowners are more in debt because that gives the govt/banks (these are now pretty much interchangable entities) more leverage.

I think that we the situation is kind of lose lose for awhile. The market treads water and hangs out where it is at with some more losses coming in at the high end. Alternately more bad statistics crop up which will then lead to more astounding backstop efforts, moratoriums, and the likes of measures we would not have dreamed of. I honestly believe there is no limit to how far the current administration will go as well as guys like Frank, Dodd, Schumer etc...

I really really hope I am wrong.

Submitted by 34f3f3f on July 30, 2009 - 2:21am.

I'm not clear where this transfer of wealth is taking place. I saw a lot of wealth go up in a puff of smoke, and then some money pumped back in. Who is getting wealthy now, apart from those who made a buck by getting out early enough? I'm also not clear that the government and Wall Street share the same bed with quite their former gusto. Geitner seems to be upsetting everyone, including Bernanke with threats of meaningful regulations.

Submitted by 4plexowner on July 30, 2009 - 3:51am.

"You can see from the resounding response that not many people care for data that shows results like this."

or they realize that an 0.4%, month-over-month "improvement" isn't worth getting excited about - is there a margin of error in the Case-Shiller data? is the margin of error less than 0.4%? haven't we talked enough about the month-over-month figures vs the year-over-year data?

is there other data that would lessen the excitement about a 0.4% "improvement" in the C-S data? oh, yeah

Worst since 1982

http://www.ritholtz.com/blog/2009/07/mor...

Submitted by sdrealtor on July 30, 2009 - 11:24am.

I dont think anyone is getting excited but the data show the that we have most likely seen the worst of it. We should bounce around these levels for the next several years then off we go again.

As for the fall in new home sales there is no surprise there. You cant sell what you arent building.

Submitted by DWCAP on July 30, 2009 - 9:48am.

Maybe I am wrong, but I dont think the bottom for the whole market is in. The cheapest segment, maybe. The very lowest segments of the market may very well have been oversold. But I certainly dont think the upper ends of the market have been.

I just think the market as a whole just isnt done just yet. I think we hit another transition point. We moved out of Crazy bubble times and into normal bubble unwind. C-S index is looking more and more like the 1990's bubble unwind, where spring rallies are met with fall reductions. Id guess we are somewhere around 1992-1993 timeframes. The bulls are preaching again, the bears are researching again, and the government is doing what it does best, hand out money and 'stimulus' (gifts) to the influental and powerful.

Eventually the government will be forced to unwind alot of the crap they have done, and when they do more of the air will be forced out. They wont unwind everything, and housing buying wont be the same, but the situtation isnt forever. If nothing else, rates will have to go up, and when they do alot of people in adjustable loans will be forced out. That is unless we get alot of wage growth with our subpar economy and 10% unemployment rates. (snicker)

Submitted by SD Realtor on July 30, 2009 - 10:50am.

From my previous post...

"In no way am I advocating that this is a bottom or people should run out and buy."

What I am saying is that all along I preached my fear of the intervention we would see. In no way do I see that intervention letting up. I do see more foreclosures coming and an increase in inventory as well.

The transfer of wealth I was referring to was the massive transfer of wealth from our future taxpayers to Wall Street. Of course you don't see it because it is not visible to you.

Submitted by peterb on July 30, 2009 - 11:21am.

There's an incredible amount of financial/economic noise, intervention and activity right now. This makes it hard to determine the greatest factors at work in the market. CA U-3 unemployment of 11.5% is a very clear signal to me that this thing has a long, long way yet to go.

Submitted by sdrealtor on July 30, 2009 - 11:27am.

Like I said, no one around here is calling a bottom. What we are calling is that the worst of the carnage is past. The time has come to look for the house you REALLY want to live in. If its a good deal in the current market, its worth considering if it makes sense to you. The days of waiting for a massive collapse in values to 2000 prices for desireable homes in the better areas has past. Aint gonna happen on a large scale.

Submitted by 2-stroke triple on July 30, 2009 - 12:10pm.

SDR et al,

Watching from the sidelines it appears that there may be a price point above which sales are really slow. Where we live in Coronado, very little is moving above $900K. In Point Loma, Mission Hills and Kensington the cutoff looks to be between $650 and $750K. Not sure about the more desirable coastal areas in North County.

From your perspective, what is the magic number above which little is moving? What is driving this number? Conforming loan limit? How sensitive is this number to interest rates, size of down payment, etc?

Submitted by SD Realtor on July 30, 2009 - 12:17pm.

To me the magic number varies with the neighborhood. I dont think anything in particular is driving this number. Once you get into the 7 figure zone it is always a slower ballgame. It is intuitive to state that these high enders are where the biggest potential for the most pain is.

Submitted by FormerSanDiegan on July 30, 2009 - 2:02pm.

What I find most interesting about this is that one of our own regular Pigg contributors (esmith, I believe)actually released this news on JUNE 1ST !

http://sdhpi.blogspot.com/

Here is an excerpt ...
"Regarding the official Case-Shiller index with 3-month averaging, next month's numbers for San Diego should be flat or slightly down, but May C-S will definitely be up (due to be released July 28, if I'm not mistaken)"

So, when C-S is reporting in November that prices are up year-to-date in San Diego through August, you'll already be able to see whether they will be sustained through early fall.

It's like getting the press release 8 weeks in advance.

Submitted by jpinpb on July 30, 2009 - 2:16pm.

From the ZIPs I'm watching, there's a lot of activity 500k and under and anything above that moves a little slower. Then anything 800k and above moves slower yet. Just what I'm observing.

Be interesting to see what happens once summer is over. As I said, and as everyone knows, spring and summer is historically the best time to see sales and we are seeing them, as expected, particularly w/the incentives out there.

Maybe the banks will never release their inventory and people will be living there for free ad infinitum. In that case, we are at bottom for sure. Also a new low in moral hazard. The consequences are minimal. The incentives are great. Buy now and stop paying.

Submitted by FormerSanDiegan on July 30, 2009 - 2:33pm.

I would guess that by December or January we will see year-over year increases in the Case-Shiller index in San Diego for the first time in the current cycle.

Of course, this won't be headline news until March or April 2010.

AT that point we will also be debating the vagaries of the C-S index and why it is biased based on market mix and other factors.

Submitted by capeman on July 30, 2009 - 6:57pm.

sdrealtor wrote:
Like I said, no one around here is calling a bottom. What we are calling is that the worst of the carnage is past. The time has come to look for the house you REALLY want to live in. If its a good deal in the current market, its worth considering if it makes sense to you. The days of waiting for a massive collapse in values to 2000 prices for desireable homes in the better areas has past. Aint gonna happen on a large scale.

We still have a bigger wave of resets coming soon and the unemployment rate is still rocketing past early 90s levels. There is no data and no real reason to think that the worst is behind us. Pricing is going up but there is no reason to believe that will last past the short to mid-term with what's still to come. The gov't can keep playing hide the sausage and roll-over games but they can't keep asset prices up forever unless wages catch up. Either way that goes I'll have a reasonably priced house at some point.

Submitted by 4plexowner on July 30, 2009 - 7:05pm.

"As for the fall in new home sales there is no surprise there. You cant sell what you arent building."

that's the kind of glib answer I'd expect from a realtor - the data doesn't support the answer, but it is the type of answer I'd expect from a realtor

Time to sell new homes

Builders slashing prices to sell new homes

http://www.ritholtz.com/blog/2009/07/mor...

what the data says is that builders are having a hard time selling the inventory that they have already built and are having to slash prices in order to sell that inventory - the issue isn't a lack of inventory

Submitted by temeculaguy on July 30, 2009 - 7:11pm.

ocrenter wrote:
prediction

this would be my prediction for over the next year. expect some additional drops at the high end to get down to near or at -40% down from peak. mid-market would go to -45% down from peak. but the low end already hit bottom and might actually see slight increase in pricing.

is it worth the wait for a mid-market home currently at -40% to get to -45% down from peak? probably not.

is it worth the wait for a top-tier market home currently at -30% to get down to -40% from peak? probably worth the wait.

I am in complete agreement with oc's prediction. The percentage hit that the different price ranges took will converge a bit (I also agree the bottom is in for the low end), it overgyrated a little for a variety of reasons. The financial stability of the different demographics allowed the higher end to hold on better, but it will not survive the invisible hand. A property that was worth 30% more in 1996, 30% more in 2003, 30% more in 2005, is not worth 50% more in 2010. It might be for a little while, but eventually the masses choose the price and unless a community or neighborhood underwent a dramatic change, the same pecking order will resume. This is especially true when comparing two price ranges of housing in close proximity. If a view lot has been worth a 20% premium on a particular street for the last few decades and now it is worth 40% because the group that could afford the extra 20% was more stable so there aren't any repos, one of two things will happen but the 20% differential will return.

I can think so much more clearly now that Odom has signed with the Lakers, the negotiations were literally ruining my summer.

Submitted by sdrealtor on July 30, 2009 - 8:10pm.

4plex,
Bring the unsold inventory numbers please. All I see and hear is that builders have gone out of business and stopped building. I'd love to see something showing that there is more unsold inventory of new homes today than last year. Bring it on Brutha!

2-stroke
To answer the question of what the magic number is, I have a very strong opinion and have seen this resistance over and over again. Up to 900K there is solid demand for what is available. As soon as you get past $900K it gets very dicey.

Capeman,
Again, I did not call a bottom. Excluding the super-luxury market of multi-million dollar properties, we have seen large declines everywhere. Most places are 20 to 50% off peak. For the carnage not to be mostly done, we would need to see declines from current levels of about 25% in the stronger areas and more than 50% in the slammed areas from current levels. Aint gonna happen!

Submitted by capeman on July 30, 2009 - 9:57pm.

sdr - not much to be said until one of us can tell the other "I told you so" but honestly it doesn't look good for your prediction in the next 5 years.

Submitted by sdrealtor on July 30, 2009 - 10:23pm.

capeman, I feel the same way about yours. Here are a few real examples.

Low end property selling for 130K now with a peak value of 275K. How is most of the carnage not done there? Could it drop below zero?

Mid range property selling for 400k now with a peak value of 600K. How is most of the carnage not done there? A decent 3BR single family home in a decent part of SD going below 300K....I dont think so.

Higher end property selling for 700k now with a peak value of 950K. How is most of the carnage not done there? A 5BR/2700 sf home in one of SD Counties nicest communities and top school districts dropping to the mid 500's....nahhhh!!

Submitted by capeman on July 30, 2009 - 10:31pm.

130K dropping 50%... not likely. I'll agree on that but the price spreads between low/mid/upper and not including true luxury homes have never been like they are 2002-now. They will compress quite a lot more (like in the mid 1990s and before) unless the economy, unemployment and credit situations turn around very quickly.

I'd bet the case/shiller adds another 50% down from here on aggregate in the next five years. That would be 60% down from the peak but I will go so far as to say 70% down from peak and I'll bet a nice steak dinner on it!

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