The Year in Home Prices, According to Case-Shiller

Submitted by Rich Toscano on March 5, 2013 - 5:47pm
Let's have a look at how the year 2012 treated house prices, as measured by the Case-Shiller index.

This home price indicator lags by a couple months, but it offers a couple advantages. First, it uses repeat sales of the same homes, so it is more accurate than simply looking at a median price, which could be distorted by a change in the quality of homes sold.

Second, it breaks the sold homes into three price tiers, which allows us to separately analyze price changes for low-, medium- and high-priced homes. (The tier cutoffs are determined by simply splitting the sold homes into three equal-sized groups — the most expensive one-third of homes sold goes into the high-priced tier, etc.).

Here is the Case-Shiller index, for the three tiers as well as the combined index in black, starting at the early-2009 price trough:



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Submitted by Jazzman on March 6, 2013 - 10:49am.

Great charts, thanks Rich.

"...a good chunk of the recovery to date has simply been due to dollars becoming worth less, as opposed to housing becoming worth more." This comment is worth more than some of the houses I see for sale. With those alarming increases in price, I wonder how much is being driven by investor activity, is seasonal and how sustainable?

Submitted by spdrun on March 6, 2013 - 11:09am.

Interestingly, quite a few "good" well-priced listings just came on the market in the last week. Sent out some offers. I think this recovery is more driven by the Homerenters' Bill of Wrongs, and banks' inability to foreclose without being mired in paperwork. No threat of foreclosure = fewer short sales since people can stay in their homes without paying for quite a while.

This same thing happened in NJ with judicial foreclosures in NJ a few years back, but now the tsunami is hitting.

Submitted by sdduuuude on March 6, 2013 - 11:53am.

So, a while back I made the claim that housing did a double-dip, even though the 2011 bottom was not quite as low as the 2009 bottom and got some resistance from the Piggs, some of whom claimed it wasn't a double-dip until it goes below the first dip.

The inflation-adjusted graph makes it quite clear it was a double-dip.

Submitted by sdduuuude on March 6, 2013 - 11:58am.

I've also said that, post-bubble, the housing market is like a ball bouncing down a not-very-steep hill hill. That aggregate inflation-adjusted graph looks exactly like this.

Submitted by spdrun on March 6, 2013 - 12:04pm.

Why down a hill? It seems to have found a good price range, where purchase costs < rents at current interest rates and prevailing rents? If anything, the market is pretty stable.

Submitted by sdduuuude on March 7, 2013 - 4:24pm.

I agree - I once said "bouncing down a hill." When you look at the non-inflation-adjusted plots, it would appear I was wrong because - as you say - it is stable.

The inflation-adjusted aggregate graph in the article was definitely bouncing down a hill, though. Made me feel better.

Submitted by CA renter on March 12, 2013 - 3:56pm.

Thank you so much for doing all this work, Rich.

I really liked the last graph showing inflation-adjusted prices since the 1980s. Today's inflation-adjusted prices are at about the same levels (even higher, in the lower-end range) than the ~1989 prices.

For those of us who remember what the housing market in the late 80s was like, it was an insanely hot seller's market, and buyers had that bubble mentality where they were out-bidding each other and writing offers as they were touring the houses...just like many of them are doing today. About six years later, many homes were selling for 30-50% less than their late-eighties peak, even in some of the very best areas in L.A.

Some would argue that the lower interest rates of today make the PITI payments very reasonable compared to the days when mortgage rates were in the ~10%+ range, but I would argue that prices are more likely to go UP when rates are high and going lower. Right now, rates are very low and are more likely to go higher in the future, likely having a negative affect on home prices going forward. I know many of us have gone back and forth on the interest rate/price issue, but if interest rates didn't matter, we wouldn't be stuck with ZIRP for so long. :(

How in the world will our financial markets manage an increase in interest rates? I just think things will get ugly at some point. The longer we're stuck with ZIRP, the more difficult it will be to unwind all of the speculative, leveraged bets that so many people have gotten into as a result of the Fed's insanely stupid and irresponsible policies...and that includes housing, IMO.

One more thing I haven't seen discussed much (maybe missed a thread?) is the fact that the FHA is changing its policies on mortgage insurance for all FHA loans (extending the duration for MIP -- often for the entire duration of the loan -- and increasing premiums on all loans), and they're (probably) increasing down payment requirements for higher-priced homes. I think this might cause at least some (minor) problems, at least on the lower end, if people can't ever get rid of MI for as long as they have their FHA loans.

http://portal.hud.gov/hudportal/document...

...

FHA has also worked to strengthen its credit policies, implementing Congress's elimination of seller-funded down payment assistance programs and enacting increased down payment requirements for borrowers with credit scores below 580. FHA has also proposed regulations to reduce the amount of allowable seller concessions that increase risks from inflated appraisals, required manual underwriting for borrowers with credit scores below 620 and debt to income (DTI) ratios over 43 percent, made enhancements to FHA's TOTAL Scorecard, and proposed an increase in the required down payment for borrowers seeking loans in excess of $625,500.

[The entire article is a very good read.]

http://www.mortgagenewsdaily.com/0213201...

...

Many of the changes, which were outlined late last year in the FHA's annual report to Congress, will raise the cost of home loans for consumers. Key among them is an FHA proposal to increase the down payment requirement to 5%, from 3.5%, for jumbo loans above $625,000. That proposal will be published in the Federal Register in the next few days, FHA Commissioner Carol Galante said in a press release.

http://www.americanbanker.com/issues/178...

Submitted by moneymaker on March 14, 2013 - 9:31am.

This spring should be the real test for real estate. With low inventory and seasonal demand, low interest rates, cash buyers, threat of inflation around the corner. I'm going to speculate that we will be having a mini bubble this summer that will only last a short time. Great time for mortgage brokers and anyone wanting to get rid of Private Mortgage Insurance (although not FHA MIP I guess).

Submitted by Thomas on July 15, 2013 - 5:28am.

Signs of recovery, but how sustainable they are??? According to Fitch ratings, San Diego is one of the most overvalued housing markets. Price increase year-over-year has been 7% (inflation-adjusted), and considering 1998 as base year, the prices have shot up by 50%!!

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