S&P: June Home Prices Down 15.9% YOY (20-city table), Bottom Is Getting Closer
The S&P Case Shiller June 2008 report of existing home sales showed record year-over-year 15.9% price declines averaged across 20 major cities, and 15.4% declines from 2Q07 to 2Q08 (see table below). Prices were down from Q108 to Q208. In June, nine of the 20 cities were up month-to-month compared with seven in May. Nevertheless, not one market is showing a positive return over the past 12 months and seven of the metro areas are reporting declines in excess of 20.0%. Co-creator of the index Karl “Chip” Case said that declines are likely to continue in the near term but that “In the meantime the rest of the market in a lot of states look reasonably like a bottom is getting closer.”
Case Shiller June 2008 Home Prices
Last month Case told Barron’s price-to-household-income ratios are returning to more historically normal levels in many bigger markets. Here’s an excerpt from his Barron’s interview:
Case prefers to study the ratio of sale prices to per-capita income in various locales — already has improved affordability. The change in such ratios varies by market, with Florida, Arizona and Nevada typically tracing short boom-and-bust cycles because any surge in speculative demand quickly is followed by overbuilding, due in part to the abundance of cheap land. The ratio in Phoenix, for example, has been reverting to a more typical six times home prices to income, after soaring to nine times in 2005 and ‘06.
Most volatile are popular metro areas, such as Los Angeles and Boston, where housing demand is high, along with restrictions on development. Los Angeles’ affordability ratio doubled from 2001 to 16 times at the height of the housing boom, before dropping back to around 11. The Boston market never grew so frenzied, perhaps because it was far from the center of the subprime-lending business in Southern California, where an array of bad business practices flourished. Boston’s housing-affordability ratio peaked at 12, and since has returned to a more normal nine times prices to income.
The index tracks existing single family homes, and is a highly credible pricing barometer for broad market analysis because it excludes condos and new construction. Condos can have more volatile pricing, and new construction pricing can be artificially set by builders, especially in times of distress when discounts an incentives can skew pricing.
ADDITIONAL TEXT FROM PRESS RELEASE
The chart above depicts the annual returns of the U.S. National, the 10-City Composite and the 20-City Composite Home Price Indices. The decline in the S&P/Case-Shiller U.S. National Home Price Index – which covers all nine U.S. census divisions – remained in double digits, recording a record 15.4% decline in the second quarter of 2008 versus the second quarter of 2007. This is larger than the decline of 14.2% reported in the first quarter of the year. The 10-City and 20-City Composites also set new records, with annual declines of 17.0% and 15.9%, respectively. However, it should be noted that the acceleration in decline was only moderate in June. The May numbers reported annual declines of 16.9% and 15.8%, respectively.
“While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Depending on where you focus on the details of the report, you can see some different stories on where home prices are headed. Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing. For the month, the 10-City Composite was down 0.6% and the 20-City Composite was down 0.5%. While still falling, these are far less than the 2-2.5% monthly drops seen earlier in 2008.”
At the national level, the housing market peaked around June/July of 2006. As of June 2008, two years later, the 10-City Composite has fallen by 20.3% and the 20-City Composite is down 18.8%. Las Vegas remains the weakest market, reporting an annual decline of 28.6%, followed by Miami and Phoenix at -28.3% and -27.9%, respectively. Phoenix was the worst performer for the June to May period, returning -2.6%. The markets that were the high-flyers during the recent real estate boom continue to be the ones that are leading the current decline. On the plus side, Denver and Boston were the best performing markets for the month, returning +1.5% and +1.2%, respectively. Both these markets have had three consecutive months of positive returns. They are outdone by Charlotte and Dallas, however, which have recorded four consecutive months of positive returns. Although there are some improving regional numbers, the picture of the overall residential real estate market remains weak.