Wednesday, May 23, 2012

More Evidence We're Past the Housing Bottom


There are more signs that the real estate market is stabilizing from the FHFA monthly house price index (HPI), which is calculated based on home sales price information from conforming Fannie Mae and Freddie Mac mortgages.  As Brian Wesbury et al. point out today, the HPI increased by 2.9% in March compared to a year earlier, which was the largest annual increase since November 2006, and the second straight month showing an annual increase following 54 consecutive monthly decreases in year-over-year prices (see top chart above). The February-March monthly increase in the HPI of 1.9% was the largest monthly gain in the FHFA series going back to 1991.  

The bottom chart above displays the HAI back to 2000, and shows that the market reached a cyclical price bottom about a year ago, home prices may have found a support level over the last year, and we're now in a new period where we can expect small, but positive and consistent increases in home prices going forward.  

As Scott Grannis commented yesterday on his blog:

"In short, the housing bubble has burst and prices have finally returned to sensible levels. The repricing of the U.S. housing stock has allowed the market to clear; we've seen the worst, and now things are beginning to improve on the margin. The evidence is becoming very strong that at the very least we have seen a bottom in the residential housing market."

Amen.  And it's likely we're now moving past the bottom, which could very likely be established as March 2011.

17 Comments:

At 5/23/2012 6:38 PM, Blogger rjs said...

archnemesis is right; dont think you can use past as a verb...

that said, without inflation, houses are a depreciating asset, just like cars...there's no reason they should ever go up in price...

 
At 5/23/2012 6:53 PM, Blogger Jon Murphy said...

There's no reason [houses] should ever go up in price...

Why?

What if you own a home that is on the complete outskirts of town. As the town grows, more and more amminites (such as schools, shops, services, etc) move closer. This would increase the desirability of your home and rise its price.

 
At 5/24/2012 4:40 AM, Blogger rjs said...

@Jon Murphy; there may be short term fluctuations due to location, but generally all houses depreciate and are eventually torn down...as a house's components (ie, roof, gutters, siding, carpeting, fixtures, furnace, et al) deteriorate the absolute value of the property declines...most people have been fooled into thinking there's an ncrease in value becasue the value of the money has gone down faster than the value of the house...

 
At 5/24/2012 6:24 AM, Blogger Jon Murphy said...

RJS-A properly maintained house can last a very long time. A car cannot. Homes can appreciate in value based on a number of factors.

Not all homes do, but I object to your statement that homes should never go up in value.

 
At 5/24/2012 8:04 AM, Blogger Jon Murphy said...

Besides, where the value of a house truly resides is on the land to which it belongs.

 
At 5/24/2012 9:34 AM, Blogger VangelV said...

RJS-A properly maintained house can last a very long time. A car cannot. Homes can appreciate in value based on a number of factors.

I think that when you adjust for size and goodies you will find that most of the price increases have come from the land, not the appreciation of the house. My rule of thumb is that total costs, including setting aside reserves for future major repairs and replacement, come to around 10% of the value of the house.

 
At 5/24/2012 9:57 AM, Blogger Pulverized Concepts said...

It's like any other exchange. If someone believes that a house is worth $X, then that's what it's worth to them. It might not be worth that much to someone else, for instance the seller. I asked a friend of mine why he sold his very successful truck stop in Iowa. He said because the other guy wanted it more than he did. That's the nature of voluntary exchange.

Theoretically, no house should ever be worth more than it's replacement cost minus depreciation. But location certainly is a factor. Identical houses, one in Hinton, WV and the other in Pasadena, CA, will have different values.

 
At 5/24/2012 10:22 AM, Blogger Pulverized Concepts said...

This comment has been removed by the author.

 
At 5/24/2012 10:27 AM, Blogger Pulverized Concepts said...

This comment has been removed by the author.

 
At 5/24/2012 10:31 AM, Blogger Pulverized Concepts said...

So, what does this mean?

 
At 5/25/2012 1:51 PM, Blogger rjs said...

vangelv; what you are describing in still inflation...if you have an acre of fallow land it doesnt change from year to year; its still the same land; how could it be more valuable in real terms...

if you plant trees on it, it can become more valuable because the trees grow...or if someone builds a road next to it, it's more valuable than a similar piece of land without the road...

originally, the reason houses seemed to appreciate in value was the inflation of the 70s; because money depreciated faster than houses, houses went up in price...if inflation was 100% per year, cars would appear to go up in price every year too; you could then buy a car & drive it three years & sell it for more than you bought it for...

 
At 5/25/2012 3:09 PM, Blogger Ron H. said...

rjs:

"vangelv; what you are describing in still inflation...if you have an acre of fallow land it doesnt change from year to year; its still the same land; how could it be more valuable in real terms...

if you plant trees on it, it can become more valuable because the trees grow...or if someone builds a road next to it, it's more valuable than a similar piece of land without the road...
"

I think that's what he said.

Instead of land value increasing due to planting trees, he used an example involving a house.

By the way, you must live in an area without many trees. In heavily wooded areas the value of the land might increase it you REMOVED trees instead of planted them.

 
At 5/25/2012 3:17 PM, Blogger Ron H. said...

PC: "So, what does this mean?"

*This* means that appraisers are now much more conservative in their appraisals, as is typical of a down RE market.

A more accurate headline might have read "Despite more buyers, appraised values of homes still decline."

 
At 5/25/2012 4:16 PM, Blogger rjs said...

let me put it this way: land and houses do not go up in value unless they are changed (improved); they may well go up in price otherwise, but that's a function of the value of the fiat currency, not the REAL property..

 
At 5/25/2012 4:58 PM, Blogger VangelV said...

vangelv; what you are describing in still inflation...if you have an acre of fallow land it doesnt change from year to year; its still the same land; how could it be more valuable in real terms..

Value is subjective. End of point.


originally, the reason houses seemed to appreciate in value was the inflation of the 70s; because money depreciated faster than houses, houses went up in price...if inflation was 100% per year, cars would appear to go up in price every year too; you could then buy a car & drive it three years & sell it for more than you bought it for


As I said, value is subjective. If the supply of money and credit goes way up because of governments I would argue that most people will tend to value houses and other goods more than they used to when the supply was much lower.

 
At 5/25/2012 5:03 PM, Blogger VangelV said...


let me put it this way: land and houses do not go up in value unless they are changed (improved); they may well go up in price otherwise, but that's a function of the value of the fiat currency, not the REAL property..


If you adjust for size and goodies you will find that prior to the bubble houses were going up n line with the inflation rate. A typical Canadian house built in the mid 1940s has the same area as your modern three car garage. It did not come with a fridge, freezer, gas stove, a gas furnace, huge energy efficient windows, or modern kitchen cabinets. When we look at the price increases we need to ensure that we are doing an apple to apple comparison.

 
At 5/25/2012 7:14 PM, Blogger Ron H. said...

rjs: "let me put it this way: land and houses do not go up in value unless they are changed (improved); they may well go up in price otherwise, but that's a function of the value of the fiat currency, not the REAL property"

Land and houses (and anything else, for that matter) go up in value because people desire them more as compared to other things they must forego to acquiure them. This could be for any number of reasons, including improvements, but not the only one.

The "price" of a property in dollars, when due to inflation, isn't a true measure of the "value" of a property, except as it compares to others.

As VangelV wrote, all value is subjective.

 

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