Thu, August 28, 2008
Boston Housing Prices Stabilizing??
The latest version of the Case Schiller Home Price Index, updated through the end of the second quarter, shows a continued decline in the broad housing market. Prices remain down versus 2007, but for April, May, and June, there were small increases in the Boston housing price data. At the end of last month, after a second month of small increases, the Boston Globe ran an article suggesting that local housing market may have turned the corner. Is three-month uptick enough to be confident that the end of the bust is in sight?
The Globe quoted David Blitzer, the chairman of Standard & Poor’s index committee, who noted that housing prices in Boston peaked in the fall of 2005, almost a year before other cities, and began declining earlier than the rest of the country’s major housing markets: “Boston may not be the first city to recover, but it’s certainly going to be among the first cities to recover. If I’m hunting for good news, I have a better chance of finding and Boston than in Miami.”
The question is, are the observed month-to-month increases really indicative of the end of the slump? I doubt it.
The figure below shows the S&P/Case-Schiller Boston data for price changes versus prior year in blue and versus prior month in red. In order to keep the axis labels simple, I’ve used the same scale for both sets of data. Even so, one can see the uptick in month-to-month changes for the first part of this year.
However, if you look at other years, including the period during which the market has been declining, there is invariably an upturn in the month-to-month data in the first part of each year. This simply reflects the increase in sales activity in the spring, when household thoughts turn to home-buying and most housing markets exhibit seasonal strength. This year’s upturn in month-to-month price changes is not at all extraordinary when you consider it in that light.
It remains to be seen whether the Boston-area housing market has reached its bottom. Most market observers are calling for continued weakness through next year, and I think that’s much more likely.
Seven of 20 metropolitan areas included in the 20-city S&P/Case-Schiller composite index experienced monthly price increases in June, while other cities continue their declines. Prices in all the cities in the index are down on an annual basis, although Charlotte and Dallas are down by tiny amounts, 1% and 3.2% respectively. The updated 20-city and 10-city annual change data are plotted below. As you can see, there’s no clear upturn yet, but maybe in a year’s time….
S&P’s Q2 2008 residential real estate indicators data, which do not exactly warm the heart, received little attention in the press. Single-family construction was down another 9.4% versus the first quarter. There’s no new quarterly data for mortgage delinquency yet, but it would be nice to see foreclosures and delinquency rates stop increasing.
Nationwide, banks continue to be more conservative than ever with their lending policies as the uncertainty in the value of their mortgage holdings makes them wary of taking on more risk. New home starts are at less than half of their 2006 peak, and the inventory of unsold homes continues to decline. Lower home prices will eventually encourage hesitant buyers to reenter the market as long as price declines seem to be slowing.
