Tuesday, February 24, 2009

Case Shiller

Case-Shiller just published their December results. Its a bit scary. Since other blogs do a better job of discussing the 10 and 20 city results, I'm going to focus just on the last 3 cities that remained about 200: LA, DC, and Miami. They are all crashing and going down together.

The chart of the three is here. But its going to be the next chart that tells the story:














What is the trend of the monthly losses for each region? Amazingly, they are behaving very similarly. This implies that its a national phenomenon. Its not 'different here.' Now, we're at the point of rolling losses. I'm watching the ex-urbs of LA almost stabilize (they're still dropping) while the inner core is now pulling down Case-Shiller. Where I want to buy, my wife is seeing 30k to 50k drops per Month!

Notice how all three cities have stabilized at about a 2.5% drop per month? Also note the last spring selling season. For March through July, the rate of drop decreased during the seasonal 'sellers market.' It wouldn't surprise me if DC's rate of drop went to near zero during the selling season. I suspect Miami and LA will show much smaller 'seller season' trends in 2009.

August through February is the 'buyers season.' Its very clear on last year's Case-Shiller derivative. The only question is how will employment and the overall economy effect buying?
















We've had two straight years of declining home values. I stand by my prediction that 2009 will be the most brutal year for price drops nationally. With the Asian markets now net sellers of Fannie and Freddie backed bonds... The 729k 'conforming jumbo' is a bit of a joke. They're going to be tough to aquire.

Do note that in the case of LA, these 2.5%/month price drops were occuring while everything possible was being done to slow down the entry of foreclosures onto the market. All those stupid laws have done is:

1. Tighten up mortgage rules
2. Delay the introduction of inventory until the spring buying season (which I call 'sellers season' as it is the best time to sell a home during the year).

Some areas will fall harder than the cities I ploted. I have no desire to beat up on Detroit, so I'll do no more than mention it. Las Vegas is doomed. Same with Phoenix; both are dropping faster than the examples listed.

Doing some simple charting, we won't see an increase in Case-Shiller before the 2011 selling season. There is quite a bit of downside potential between now and then. Oh, if you get the bargain of a lifetime, go ahead and buy. I'm going to wait until 2010. I still see price drops ahead greater than $100k. Thus, its not yet time to buy.

Got Popcorn?
Neil

5 comments:

The Anonymous said...

"Neil said...

Also note the last spring selling season. For March through July, the rate of drop decreased during the seasonal 'sellers market.'"

Neil - I dont know if you know this but CS now produces a seasonally adjusted index.

http://www2.standardandpoors.com/spf/pdf/index/SA_cs_tieredprices_022445.xls

Unfortunately for me, it showed that DC high end prices actually increased a tiny bit (+0.14%)...the first increase seen in 15 months.

I just hope its more of a blip than anything.

wannabuy said...

The anonymous,

Since I'm not paid in seasonally adjusted dollars... ;)

Where I want to buy is dropping so fast its amazing. Every 3 months my wife and I find a home below some price we haven't seen for years where we want to buy.

First it was finding the first homes listed below $1.1 Million that met our requirements.

Then below an even Million.

My wife was excited finding ok homes below $900k.

Now the first homes below $800k are hitting the market with what we want. A coworker just bought at $750k for a home that needs a new kitchen (he's also adding 300ft^2).

Inventory (yea... I need to do graphs) is below 2008 almost everywhere but also above 2007.

Got Popcorn?
Neil

The Anonymous said...

Glad to hear it about pricing in your area Neil. Looks like things will work out for you.

wannabuy said...

Update on the coworker's purchase:

About $850k for a nice lot size in 90275. This is after everything (new kitchen, increasing the space to ~2,500 ft^2, painting, floors, one new 'powerder room bathroom') all with 'single floor living.' All of the added space is for the 'common areas' (the added 'powder room bathroom' is near the family room).

Its a four bedroom (smallish bedrooms) currently with 1 3/4 bath (it thus becomes a 4/3 in Realtor speak) with an out of date master bath.

This property would have gone for $1.3 to $1.5M during the bubble. This is costal LA, prime schools, no crime (excluding mail theft and wives who knock off the hubby for insurance money). ;)

As I noted in the main article, I expect home price declines to slow during the selling season.

CR had posts up yesterday predicting that 'best case' the US would see a 22% decrease in 2009 and 7% in 2010.

Where I want to buy is trending with the national (or faster price drops) now. We haven't been hitting the 'best case' scenarios.

So that implies a minimum $160k to $200k price drop on the homes my wife and I would consider.

To think, nationally, we do not seem to yet be in capitualation.

Got Popcorn?
Neil

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Real Estate Investor