Realty Check

Home Price Headlines Hide the True Picture


How do I loathe home price day?

Let me count the ways.

The rash generalizations, the seasonal vs. non-seasonal adjustment confusion, the month-to-month vs. year-over-year, the contention among all the varied home price reports from the various and varied entities that track them.

I could go on, but if you are a regular Realty Checkreader, you've heard all this before.

This month is particularly frustrating, because the big headline from S&P/Case Shiller was that home prices rose for the first time in eight months. Okay, yes, from March to April, with no seasonal adjustments, home prices rose barely, less than one percent, in the nation's top 20 housing markets. When you seasonally adjust those numbers, the prices fall. Why?

Because in different seasons, different types of buyers buy different types of homes.

The Spring market is historically replete with families; these are move-up buyers, purchasing larger, more expensive homes. That skews the overall prices higher. They buy in the Spring because they want to move over the summer, when school is out. You tend to see more single and first-time buyers in the fall.

This is why I judge prices year over year, because you are comparing apples to apples. Prices are down in 19 out of the top 20 markets year-over-year, with six markets hitting new lows on the S&P/Case Shiller Home Price Index.

But how can you even use that kind of seasonality, when today's market is unlike anything we've seen in history?

If one third of the market is now distressed properties, largely purchased by investors, and the first time buyers are lower than usual, and the tight lending environment is cash-strapping many move-up buyers, then you can't really look at seasonality because the seasons aren't what they used to be.

Does that mean prices are improving? Hard to say because of what's happening at different price points.

We asked S&P's David Blitzer on CNBC this morning how prices are faring at different price points "The lower prices seemed to do less well or more poorly then the high to mid priced," he answered. I blogged about this yesterday, but today's report seems to put an exclamation point on it. If the lower priced homes are the bulk of the market, and they are losing value more than the higher priced homes, then why are we seeing these slight gains? It doesn't make a whole lot of sense.

Here's how IHS Global Insight's Patrick Newport sees it:

Going forward, the Case-Shiller indexes are likely to post increases during the home-buying season, and then turn down again. According to the Mortgage Bankers Association, nearly 13% of all homeowners with mortgages are either behind on their payments or in foreclosure. We believe that weak demand and the weight of these mortgages-gone-bad will lead to distressed sales that will eventually drag the Case-Shiller composite indexes down at least another 5%.

Now this from Paul Dales at Capital Economics:

The slowdown in the rate at which prices are falling is probably due to foreclosed sales accounting for a smaller share of overall sales rather than a fundamental improvement in the balance between demand and supply. With the foreclosure pipeline still full to bursting, we think that prices will fall by a further 3 percent over the remainder of this year before stabilising sometime next year.

At this point there are far too many unique regional factors weighing on home prices to draw any broad national conclusions. I don't think price drops are done, I don't think further price drops will be dramatic. I do think home prices will begin to recover regionally, as they have here in DC, but it will be a slow and bumpy process. How's that for a truly scientific opinion?

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