March 29, 2011: THE first S&P/Case-Shiller housing index data for 2011 are now out, and the headlines are likely to ring with gloom—urged on by S&P itself:
“Data through January 2011, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show further deceleration in the annual growth rates in 13 of the 20 MSAs and the 10- and 20-City Composites compared to the December 2010 report. The 10-City Composite was down 2.0% and the 20-City Composite fell 3.1% from their January 2010 levels. San Diego and Washington D.C. were the only two markets to record positive year-over-year changes. However, San Diego was up a scant 0.1%, while Washington DC posted a healthier +3.6% annual growth rate. The same 11 cities that had posted recent index level lows in December 2010, posted new lows in January…
“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20- City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now. “These data confirm what we have seen with recent housing starts and sales reports. The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”
I think it’s safe to predict that no new housing boom is forthcoming, and I wouldn’t be surprised if national indexes fell a little more. But let me offer a few reasons not to buy the forecasts of impending doom.
First, recall that this index is a three-month moving average of reported closed sales. That means that the January figures use data obtained in January, December, and November, which include sales that may have gone under contract as early as September. The American economic outlook has strengthened considerably since late autumn, which suggests that the current outlook for prices is better than the index is letting on.
Second, for some quirky reason S&P does its write-up based on the non-seasonally-adjusted (NSA) figures. Housing markets are typically weaker in the winter, and so this decision overstates the extent of the gloom in the latest numbers. For instance, the NSA index shows 19 of the 20 surveyed markets declining from December to January. The seasonally-adjusted index, on the other hand, shows declines in just 12 markets.
Finally, the monthly trend seems, quite clearly, to be improving. From September to October, the seasonally-adjusted, 20-city index fell 1%. The next month it dropped 0.5%, and the next month 0.4%. From December to January, this broad measure fell just 0.2%. I would not be surprised to see some gains in the first half of the year.
Housing markets are vulnerable to potential shocks. A decline in expected output or a new wave of financial instability could precipitate a sharp downward move in prices. But absent that kind of trouble, I don’t see sustained, national declines through the year as being particularly likely states an author from the Economist.
