By Steve Harney on February 8, 2010
Some Hopeful Signs in Home Prices
NPR – January 26, 2010
Reports Suggest Housing Market Stabilizing
Philadelphia Inquirer – January 27, 2010
U.S. Economy: Home Prices, Confidence Climb Further From Abyss
Business Week – January 26, 2010
If you read today’s headlines, you might believe that house prices in this country are stabilizing. As usual, I want to peek behind the headlines and look at the actual report that created them.
In this case, it was the Case Shiller Index, a well respected home pricing index. Many news organizations use this monthly report to tell the story of real estate. But the story of where prices are headed cannot be determined by a report that looks at values two months ago.
Yes, the Case Shiller report that came out at the end of January was reporting on November prices. It takes time to gather the information, create the report and release it.
To get a better perspective on future prices, let’s look at a quote from Karl E. Case from a New York Times article in late December:
I’m worried. Everyone’s worried. If prices sink 15 percent from here, which is a possibility, and the 2008 and 2009 loans go bad, then we’re back where we were before — in a nightmare … The probability is very high of a serious double dip.
The reason this is significant is that Karl E. Case is the Wellesley College economist who helped design the Case Shiller Index. It seems that the creator of the index disagrees with the headlines it spawned.
We have posted on the fact that the government has been artificially propping up prices in order to stabilize the economy. When these programs end on April 30th, there will be downward pressure on prices.
In an article in the Wall Street Journal, Ronald Temple, portfolio manager at Lazard Asset Management said:
A withdrawal of government support, combined with high unemployment and rising mortgage foreclosures, could push home prices down 20%.
And he is not the only one predicting prices will tumble. Below is a table of other companies who feel the same way.
And it appears the pressure will be felt in almost 90% of the regions in the country. As CNN Money reported:
Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
In order to correct the current challenges in the housing sector, we must look past headlines and truly research the facts.