Search

State of the Housing Market: Case and Shiller Discussion

by devteam March 1st, 2012 | Share

The original formulators of the S&P/Case-ShillerrnHousing Price Indices held a press conference on Tuesday to discuss the staternof the housing market.  The two, RobertrnShiller, Professor of Economics, Yale University and Karl Case, Professor ofrnEconomics Emeritus, Wellesley College, were generally up-beat about thernindustry in the conference which coincided with the release of the monthly andrnquarterly national and city-based indices.</p

Shiller said that a survey he has conductedrnfor years asks homeowners a question about the amount of change they expect inrnhouse values over the next 12 months and the recent responses are positive. Hernpointed to Orange County California as illustrative.  When homeowners there were asked thatrnquestion in 2005 the average expectation was for a 10.7 percent increase, butrnthen it plummeted into negative numbers. rnIn the most recent survey the expectation was for a 0.4 percent pricernincrease.  A second question is whetherrnor not it is a good time to buy.  In 2005rn90 percent of Orange County respondents said yes and even in 2009 that numberrnremained at 79 percent.  It is now backrnto 92 percent.</p

Expectations are a major driver and inrnhousing they can become self-fulfilling prophecies but right now people’s longrnterm thinking it that it is time to buy, but short term thinking keeps them inrna holding pattern.   Things are lookingrnpositive, but not that positive.</p

Shiller pointed to two leadingrnindicators – the National Association of Home Builders survey on builderrnconfidence and the Census Bureau figures on housing permits.  Both of these peaked in 2005 and thenrnplunged.  Now they are both up, the NAHBrnfigures of buyer traffic is rising rapidly, but remain well below their peaks.  Other indicators such as home prices arernstill heading down and there is great uncertainty about how close they are tornbottom.   </p

Case said he is constantly asked whenrnand how the market is going to clear. rnBut there are hundreds of markets across the country and each has dozensrnof submarkets.  Every MSA has a lowrnincome sector, a high income sector, waterfront property, distressed propertyrnand MSA and each of its submarkets are subject to a different level ofrnclearing.  </p

Case said that household formation andrnhousing starts drive the market and presented some statistics about their recentrnperformance.  Housing starts peaked atrn2.37 million in 2006 which, he said, sounds like a big number.  But looking back over the last 60 years, startsrnpeaked at about that same number in every housing cycle only to then fall belowrn1 million.  But only once in the last 60rnyears did they ever fall below 800,000.  That time it was only for a single month.  This time starts came off the peak and fellrnbelow 700,000 and kept going down into the 400,000 range, an 80 percent decline.  They have remained below 700,000 for 40rnstraight months</p

This has been devastating to thernconstruction industry but should have provided some stability on the supplyrnside as not only are we not building but there is evidence we are removingrnhomes through large scale bulldozing going on in some cities.  However, household formation has let down therndemand side.  Anytime formation hasrnfallen below 1 million it has meant trouble but between March 2010 and Marchrn2011 household formation actually fell into negative numbers.  Then it came roaring back, and has been abovern1 million since last march.  </p

Case said we are still at the middle ofrnthe cycle.  Inventories are tightening, demandrnis coming back while production is not, so we should be working through thernproblems but there are still bombshells out there.  People can’t get mortgages because ofrntightened requirements and they can’t get mortgage insurance except throughrnFHA, Freddie Mac and Fannie Mae.  Therngovernment is taking all of the risk and this is a problem that probably won’trnbe tackled until after the election.</p

Shiller said he was more positive aboutrnhousing this year than he was a year ago. rnMany of the indicators are up and unemployment is down.  But none of the changes have been dramatic,rnso he is more optimistic than one year ago, but not a lot more optimistic.</p

A questioner asked each of thernprofessors what they saw as the biggest problem holding back the market.  Shiller pointed to the difficulty in gettingrna mortgage.  Case said it was the 8.3rnpercent unemployment and a vague fear about a lot of things; gas prices, thernproblems in Europe.  But most of all itrnmight be a marked change in the way people think about homeownership.  If you look back historically, he said,rnpeople did not believe that prices would ever fall.  That was the American dream and it has becomerna nightmare.  As a result people arernbecoming more realistic about their housing choices.</p<p<br /rn

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...