Tuesday, February 25, 2014

S&P DOW JONES INDICES Housing Expectations/and PULSENOMICS

To know what to offer or pay for a property you need to do the best you can at predicting what the future holds for the particular market. You should always buy based on today’s market and not assume that prices will continue to go up in the future. Something we all forgot during the housing bubble. But knowing if the market is going up or down will add value to your analysis.

Today the S&P Dow Jones Indices released their Press Release: Home Prices Lose Momentum According to the S&P/Case-Shiller Home Price Indices I attended the teleconference discussing the results. It was interesting listening to these highly regarded experts in the field of economic data and forecasting: Professor Robert Shiller, Professor of Economics at Yale University and David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. Shiller and Blitzer seemed to give weight to the reports presented from Pulsenomics, so I have included the link to that site as well.

Of course, they always qualify their statements by pointing out that any of these reports reflect a point in time and are not necessarily predictions of the future. As the disclaimer goes, any past performance is not a guarantee of future results. Economics is a social science because it deals with the societal behavior of people. It is not always easy to predict what the public will think or do regarding any given event or circumstance. The models for analysis are full of assumptions, some of which are not always correct or change over time.

In any case, these gentleman seemed to state that the breaks have been applied to the fast paced and exponential increases of home prices seen over the past year. Does this mean a downturn in the economy or just a leveling off of home prices? The answer isn’t clear at this point, and one would have to bring in additional factors such as unemployment rate, numbers of jobs lost, and number of jobs created, number of housing starts, as well as other domestic and foreign economic conditions.

The first graph from the Case-Shiller report shows the U.S. National, 10-City Composite, and 20-City Composite of home prices.

The second graph indicates the bottom of the trough was Q1 2009, and “Nationally, home prices are back to their 2004 level.”

A corroborating graph is from the Federal Housing Finance Agency (FHFA) also released today shows the deceleration of home prices nationally. Prices are still above one year ago, but the rate at which prices are changed has slowed or turned negative.

I like looking at the FHFA report because it breaks down the information by Census Division on page 13 (1-year, 5-year, and percent change since 1991Q1). So if you are just interested in your region of the country it is easy to see how your region has changed. They also break down by state on pages 14-15.

Couple the Case-Shiller report, FHFA report, with the Pulsenomics: Home Price Expectations Survey and you have a very intriguing picture of possible future activity in the housing market.

Blitzer and Shiller touched on changing demographics that might affect the future of real estate: 1) Younger generations tend to be less interested in home ownership and more interested in mobility and flexibility. 2) Couples often do not have any children. 3) They tend to want to move into the city areas from the suburbs because of the amenities such as restaurants, night clubs and internet cafes, museums, more social activities. As the economy improves these factors may push the market toward more apartment and condo construction closer to the city centers.

I like the Pulsenomics: Summary Comparison of National Home Price Indices which compares Case-Shiller and Zillow National Home Value Index describing the primary purpose of each, methodology, underlying data, coverage, release frequency, reporting lag. Since there is always that underlying suspicion that one is lying with statistics, I think it is always useful to look more closely at the source of the statistics and method of analysis so I suggest you go directly to the source and review the information for yourself.

An additional resource for research and analysis is:
-       CORELOGIC—2/20/14—The MarketPulse. This report analysis the Los Angeles CA market. 12/30/13—The MarketPulse suggests that “Listing Prices Suggest HPI is Leveling Off” There are a number of additional reports that shed light on housing trends. This company provides a lot of free information, but for a fee can also fine-tune the research for your individual company needs. I have been too cheap to pay for their services, but I hear good things about the service.

So ending thoughts:

We have to wait and see if these changes represent a significant pull back, soft-landing, or momentary lull in the housing market and the economy.

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