US Home Price Index Hits New Post-Bubble Low

There has been an ominous new drop in the Standard & Poor’s/Case-Shiller index, a key measure that is closely watched by economists. This casts further doubt about the future of the housing market’s recovery. The index pushed below its previous bottom hit in April 2009, confirming a much-feared double-dip in home prices.

Calculated Risk, a blog the Fulano follows, went a step further and computed the change in real home prices, which are home prices adjusted for inflation. That shows US homes prices are back to the 1999-2000 period in inflation-adjusted prices.

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US Housing: The Lost Decade

The following graph shows the Case-Shiller Composite 20 index, and the CoreLogic House Price Index in real terms (adjusted for inflation using CPI). On a national basis, housing prices in January 2011 are back to where they were in January 2001. A whole decade of appreciation has been wiped out. Economists expect housing prices to fall another 5% to 10% before stabilizing. Even after home prices stabilize, they do not expect any significant price appreciation for many more years.

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US Housing Prices Heading Back Down

Standard & Poors produces a housing price index which is widely viewed as the most accurate measure of what is happening in the US housing market. Most other housing indices measure average or median sales prices, so they can be skewed by a change in the market mix. For instance, if in a certain month more people purchased large new homes than old small, cheap homes, the index would show a rise. This could be confused with an increase in the value of homes, when it was really an increase in the purchase of higher-priced homes.

The S&P Case-Shiller index does it differently. They track same house sales. For instance, if a specific home sold for $300,000 in October, 2010, they would go back through the records and find out what it last sold for. Then they would compute the change in value of that particular house. These sales from all over the country are then aggregated into an index. Here is the Case-Shiller Index for October, 2010 (which actually is an average of the prices for August, September and October, 2010). The chart graphs a 10- and 20- metropolitan area price change.

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As can be seen, housing prices are heading back down. Traditionally, housing and housing related services are 17-18% of the Gross Domestic Product in the US.


US Home Prices Just Drove Off a Cliff

The Clear Capital index is a real estate home price index which works off of repeat home sales, with a price-per-square-foot model, and is a rolling three months average that can be updated daily. Here is a two-day old press release from them:

Clear Capital™ Reports Sudden and Dramatic Drop in U.S. Home Prices

“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”

This special Clear Capital Home Data Index (HDI) alert shows that national home prices have declined 5.9% in just two months and are now at the same level as in mid April 2010, two weeks prior to the expiration of the recent federal homebuyer tax credit. This significant drop in prices, in advance of the typical winter housing market slowdowns, paints an ominous picture that will likely show up in other home data indices in the coming months.