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A cold shower for the Case-Shiller Index
Wednesday, July 29, 2009
David Reilly over at Bloomberg tosses some cold water on the idea of a speedy return to a bubbly housing market in this commentary today.
A housing bust is a lot like a tequila hangover. After the most acute signs of distress have passed, it still takes a long time before things start to feel normal again.This is probably not what a lot of people want to believe this week...So even if housing markets are approaching or have reached a bottom -- a matter of great debate at the moment, especially given yesterday’s release of May home-price figures -- history shows a rebound isn’t likely to be anywhere near as fast or furious as the meltdown it followed.
Sometimes, rebounds don’t happen at all. Not, at least, without a large dose of inflation. And that carries its own risks for the economy and investors.
To see a mirage-like rebound, look at Midland, Texas. That area is still waiting to fully pull out of a housing slump that began in the early 1980s.
...
Pulling out of a housing slump can take twice as long as it took for home prices to melt down, according to the FHFA. That fact should temper some enthusiasm over recent signs that housing markets are stabilizing.
3 comments:
In addition, the uppper and middle tiers are skewing the prices up. Still way too many forclosures not on the market. t he index is not helpful at this time.
The Index has always been skewed, or atlease what people think it concludes. You cannot extrapolate house by house appreciation or deprecation on the basis of average or median home pricing statistics. In times like these, expensive homes sales are reduced and more affordable home sales make up a larger pecentage of total sales. When you look at the Indexes in these periods you could think that prices are down accross the board because the averages are down. . Not the case.
In good times when you have more expensive homes selling, you cannot exttrapoplate accurate appreciation either (for the same reason).
From my perspective, the drawing of false conclusions from these reports has contributed significantly to reluctance of potential buyers to step up and make offers throwing the maket out of balance. In reality, the value of a home results in a meeting of the minds of buyers and sellers - period. Media reporting of false conclusions can and does impact the thinking of buyers and resutls in buyer confusion and increased inventories.
The fact that sales volumes on more expensive homes is down does not lead directly to the conclusion that the average or median are significantly skewed. They may be skewed. Or, there may be some very big price declines yet to be recognized at the upper range of distribution. It is somewhat similar to banks' unwillingness to mark assets to market. In the end, you don't have to wait for Case-Shiller to tell you which way prices on higher end homes will go. Credit conditions will continue to tighten. This means it will be more difficult to obtain loans and interest rates will continue to rise, perhaps significantly. That is a certainty and it will continue to exert enormous pressure on purchases that require significant financing. Buyers are smart to stay away until valuation measures like price/rent and price/income return at least to very long-term average levels (30-50 yrs), and preferably to near historical trough levels.
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