March 10, 2011 by Leave a comment

This morning Clear Capital released its monthly Home Data Index.  They reported that national home prices fell 1.4 percent quarter-over-quarter, and that home prices in the West fell a stunning 4.5 percent quarter-over-quarter, which “could lead the region into double dip territory as soon as next month.”

Alex Villacorta, director of research at Clear Capital commented:

“Despite distressed inventory pressure and traditional winter inactivity, current trends are continuing to show a softening of price declines.  The 3.9 percent quarterly decline we observed in December has given way to moderating declines with the national price index now down only 1.4 percent, suggesting a leveling of prices is on track for spring.  From a larger prospective, prices are still up 4.2 percent off the absolute lows of the housing crash, a sign that long term gains can be realized amidst the volatile behavior of the last two years.  Yet when comparing this growth to other economic indicators over the same time period, it is clear that the housing market still has a long way to go toward a sustained recovery.”

It should not be surprising that the national housing market continues to be dragged down by the Western part of the country, as Nevada, California, and Arizona continue to be amongst the worst housing markets in the country, consistently ranking in the top five in foreclosures and negative equity.  These are also among the areas that saw the biggest price increases and the most construction during the bubble years.  Prices fell 1.6 percent in the Midwest region, stayed more or less the same in the South, and actually increase 0.3 percent in the Northeast.

Somewhat interesting to me are the discrepancies between this report and the S&P/Case-Shiller Home Price Indices.  The two reports have different methodologies, but the most recent Case-Shiller report showed home prices falling 3.9 percent during the fourth quarter of 2010, and showed the National Index as being down 4.1% compared to the fourth quarter of 2009.  David Blitzer, the Chairman of the Index Committe for S&P was somewhat less sanguine than Villacorta:

“We ended 2010 with a weak report. The National Index is down 4.1% from the fourth quarter of 2009 and 18 of 20 cities are down over the last 12 months.  Both monthly Composites and the National Index are moving closer to their 2009 troughs.  The National Index is within a percentage point of the low it set in the first quarter of 2009. Despite improvements in the overall economy, housing continues to drift lower and weaker.”
Again, the reports have different methodologies and are measuring slightly different things, and are both probably equally valid measures of home prices.  I am more inclined to believe that prices will continue to fall than flatten, largely because foreclosures are set to increase this year, and the supply of unsold homes will continue to increase.  I also do not see much cause for celebration on the employment front, so I don’t think demand for housing is going to suddenly pick up.  There is great variance from one housing market to the next, but basic supply and demand should tell us that home prices will continue to fall.

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