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Real Estate: Looking In On The Housing Disaster (XHB, ITB, LEN, KBH, DHI, TOL, PHM)

February 3rd, 2012

Jeff Harding: It would not surprise anyone that home prices are still falling, perhaps less, but they are still declining. The Case Shiller report for November 30, 2011 showed:

Home Price Indices, the leading measure of U.S. home prices, showed declines of 1.3% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City Composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October. In addition to both Composites, 13 of the 20 MSAs saw their annual returns decrease compared to October’s data.

This chart gives a good picture of the trend:


We are back to 2003 in terms of average national home prices as shown in the above chart. This hasn’t changed much recently. It does appear that prices are trending flat which is borne out by other data we are seeing. I don’t see the housing market recovering any time soon because there are too many homeowners in trouble with their mortgages. I recently read an article from McKinsey that suggested we are one to two years away from a stabilized housing market. That is as good a guess as any.

The number of properties that are delinquent or in foreclosure are still very high as shown in this chart from LPS:

This chart shows that while we are still at very high levels, but it doesn’t seem to be getting worse.

If we look at the shadow inventory, at 1.6 million homes, we can see this number also trending down-to-flat as well:

The only areas within the Case Shiller MSAs (Metropolitan Statistical Areas) to go positive were Detroit and Washington DC: they posted annual returns of +3.8% and +0.5%, respectively. I would guess with Detroit it has declined so far that even the auto industry employees can afford to buy homes. As for DC, well, we know what is driving that. In fact a new indicator of positive economic growth could be a decline in home prices in the Washington DC MSA.

One more indicator that is telling, is the national home ownership rate which has declined to 66%, or at about the level found in 1998, before the big housing boom started (it peaked at 69%+):

Long-time readers will recall this was one of my “megatrends” that indicates a changing view of home ownership as financing continues to tighten up (despite low interest rates) and people see homes as less of an investment these days. Which is quite justified now that we can see that values have gone backwards (see above Case Shiller chart), a ten-year loss. It was my forecast (2009) that we would hit the 66% level (Megatrend No. 5).

As I always say, all real estate is local, so your own situation could be quite different than these national and MSA statistical averages.

Related Tickers:  SPDR S&P Homebuilders (NYSEArca:XHB), iShares Dow Jones U.S. Home Construction (NYSEArca:ITB),  iShares Dow Jones U.S. Real Estate (NYSEArca:IYR), Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH), D.R. Horton (NYSE:DHI), Toll Brothers (NYSE:TOL), Pulte (NYSE:PHM).

Written By Jeff Harding From The Daily Capitalist

The Daily Capitalist comments on economics, politics, and finance from a free market perspective. We try to present fresh ideas the reader would not find in contemporary media. We like to call it “unconventional wisdom.” Our main influences are from the Austrian School of economics. Among its leading thinkers are Carl Menger, Ludwig   von Mises, Friedrich von Hayek, and Murray Rothbard. There are many practitioners of this school today and some of their blogs are shown on the blogroll. We trace our political philosophy back to Edmund Burke, David Hume, John Locke, and Thomas Jefferson, to name a few.

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