| Looking for Signs of Improvement |
| Written by Jonathan Smoke | |
| 01.27.2009 | |
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Discuss this article on the forums. (0 posts) While yesterday provided some positive news that progress was being made on existing home inventories in December, today we received a reminder of how bad things were in November as well as further insight into why existing home sales have picked up. Would you believe that home prices have fallen? Sarcasm aside, the recently released Case-Shiller Home Price data from Standard and Poor’s revealed that home prices set new record annual declines in November. According to the S&P report, broad based declines continued in the prices of existing single family homes across the United States, with 11 of the 20 metro areas covered showing record rates of annual decline, and 14 reporting declines in excess of 10% versus November 2007. All 20 markets covered and both composites posted negative changes for the month and for the year. Phoenix, Las Vegas and San Francisco have each posted losses of more than 30%. The “best” performing markets were Dallas and Denver, which each posted annual losses of less than 5%. The 10-city composite, which is composed of high profile housing markets with relatively high home price volatility, recorded a 19.1% year-over-year decline and a 2.2% decline in November over October. The monthly decline was slightly higher than the prior month decline of 2.1%. This report is really just confirmation of what we know happened through the end of December—prices fell as more distressed sales were represented in the transactions. Lower prices invite opportunistic buyers, even if those buyers are investors capitalizing on the situation. The key questions are how long will this condition continue and when will we know that conditions are improving. Our Sales Trends charts, powered by Altos Research, provide better insight into more recent conditions relative to current resale listings. Just as the various price indices have shown us, the average price of listings continues to fall in the 10-city composite markets. As prices have fallen, inventory levels have fallen. But, average days on market have not improved until recently. So these trends taken together would indicate that at least in these ten high profile markets, it is taking substantial price discounts to move inventory. As long as new inventory continues to be added as a result of further foreclosures while we have limited “normal” demand, we will continue to see slow moving progress and hence no significant improvement in days on market. Of the markets covered by Altos, I am only seeing improving conditions on Days on Market over a 90-day average in Salt Lake City and San Antonio. And when you consider what the last 90 days covered, that should come as no surprise. However, if inventories do not grow as rapidly or if we see an uptick in demand, both days on market and inventory levels are likely to fall. Once they do, average prices should stabilize. Some form of housing related stimulus may help either or both of these scenarios, which is why housing is so important to the recovery. But the wildcard now in the mix is the growing level of unemployment. We don’t know when this cycle will change, but we do know that we should start seeing it play out when looking at the right leading indicators. 
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