Friday Flashback: Case-Shiller Home Price Losses Mapped

I thought it would be interesting to post one more viz on the latest Case-Shiller numbers. This time I’ve put the data from all twenty cities on a map. The size of each circle represents how far back prices have rewound (larger = further back), and the circles are color-coded by how much prices have lost from their peak value. Float over a circle for the details about that city.

Here’s what the National Association of REALTORS had to say about national housing bubbles just a few years ago:

Has there ever been a national housing price bubble? No.

How long have home prices declined in the past?

Although there are exceptions to any general finding, most metro areas that experienced price declines were relatively short lived (several years). … Very few people buy at the top of a market and then sell in a short timeframe. After several years, home prices level and return to normal appreciation patterns.

Note that every city tracked by Case-Shiller sits at a home price level lower than when that NAR document was published in 2005. Oops.

Of course, it could be worse. You could be the guy that wrote a cocky “21 reasons to bank on the Phoenix real estate market” blog post in July 2006, just one month after prices peaked there.

HousingPanic, a particularly vitriolic BubbleBlog — which is saying something — asks:

Realistically, how overvalued are Phoenix home prices?

Obviously, I consider this a profoundly silly question…

…We keep our own home sales price statistics, so we have no doubt that values are down from their high in December. How much? Right now, about 4%. Could they go lower? Certainly. Will they drop by the huge amounts HousingPanic and his flying monkeys seem to yearn for? This seems very unlikely.

What seems much more likely is that Phoenix will recover from the hangover of last year’s buying binge and get back to a steady rate of growth — historically 6% a year.

Here’s the especially amusing part. In the July 2006 HousingPanic post linked to by this esteemed Phoenix real estate professional, it was suggested that Phoenix home prices may be overvalued by as much as 50%. Note in the map above that Phoenix home prices are down 55% from their June 2006 peak (so far).

Oops.

The purpose of our Friday Flashback series is to remind people why it’s never a good idea to base your home purchase decisions on the word of someone with a vested financial interest in selling as many homes as possible for as much as possible, no matter what. If you’ve got a good example of local home salespeople or other industry shills on record making fools of themselves in the years before the bubble burst, shoot me an email.
  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

19 comments:

  1. 1
    Raymond says:

    Due to the power of mathematics, a 55% drop means that housing was 120% overpriced, more than twice as bad as HousingPanic’s worst-case!

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  2. 2
    TheHulk says:

    golly. Nice visualization job Tim. Keep it up.

    Demonstrates very vividly, no place is special.

    Ha ha, Tim’s postprocessing replaces the da*n with a “golly”.

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  3. 3
    softwarengineer says:

    Major City RE Prices and Employment Go Down

    All other prices sky-rocket, article in part:

    “…Real state and local government consumption expenditures and gross investment fell 2.4 percent in the quarter, reflecting the need for belt-tightening amid a huge debt and deficit mess.

    At the same time, the economy will have to deal with a new normal in oil prices, with the former range of $80 to $90 now likely to be replaced by something north of $95 and perhaps well into the hundreds.

    T. Boone Pickens told CNBC on Friday that he expects oil to hit $120, a daunting prospect for an economy hoping to keep inflation out of the way long enough for employment and housing to catch up to the rest of the economic data points….”

    http://finance.yahoo.com/news/Austerity-Oil-Prices-Helping-cnbc-1308611124.html?x=0&sec=topStories&pos=main&asset=&ccode=

    The Great Depression saw an approx 30-50% deflation with high unemployment….today it’s FAR worse IMO, high unemployment with inflation of food and energy is my definition of Hades.

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  4. 4
    m-s says:

    I’ve said before that in Texas, where I’m currently at, state regs are, briefly, that you cannot extract equity until your debt-to-equity in the house is below 80%, and it must stay that way. Texas is not normally known as a hotbed of regulation, and banks fought to get this one repealed during the bubble. Not so much fight now. Some railed against the state locking up “their money”. Not so much now. Our prices never went up so much during the bubble, which made me sad. They have come down much less too. Whatever doesn’t go up, doesn’t come down, I guess.

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  5. 5
    Jonness says:

    The Seattle Case-Shiller has lost 7% since Ardell’s much touted 3/09 bottom call (which came a month after her much touted 2/09 bottom call).

    It must be terrible to pay more for a house than it’s worth.

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  6. 6
    ARDELL says:

    RE: Jonness @ 5

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you mostly counting the ones that weren’t good enough to keep?

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you overweighting the short sales and foreclosures?

    Seems “all inclusive” data would be at least equally relevant.

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  7. 7
    Gary says:

    Too bad the Seattle market can’t benefit from the average $122,000 BONUS (not base salary) paid on Wall Street this year.

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  8. 8
    synthetik says:

    Is it OK to gloat now?

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  9. 9

    RE: ARDELL @ 6 – I don’t have a major problem with the paired sale approach (it’s necessary if you don’t want to use a monetary based system), but I do have a problem with C-S including short sales and bank owned properties in the mix. That will skew their data, unless you want to assume condition doesn’t affect price, less demand somehow doesn’t affect price, that people pay nothing for implied warranties of condition and express warranties of title, etc. Since those type of sales make up a higher percentage of sales in the winter months, they probably make up a higher percentage of C-S’s paired sales and/or affect the pairs they throw out.

    I suspect that’s the explanation for how Phoenix can still be falling so fast after having fallen so far.

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  10. 10
    Scotsman says:

    RE: synthetik @ 8

    No, it’s not OK to gloat- you will still be laughed at by a significant portion of the real estate industry. You must wait until home prices have fallen a minimum of 50% from peak values and no one, not even Kary and Ardell can dispute your claims. Witness the tortured logic of their posts above. But the time is coming when discussions of median constructs and CS pairings will be moot for everyone. Then you can gloat. For now, there is still work to do. People are still buying houses, thinking they will start to see building equity in the years ahead, or at least recover the now certain losses they will experience. Not gonna happen. The 2-19 Economist magazine has a great piece on Ireland’s real estate crash. It reads just like a description of ours, except they lead by a couple of years. Cue debate about the 18 month time shift in Tim’s graphs. . .

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  11. 11
    ARDELL says:

    I’ve been running some numbers, mostly for my everyday use vs blogging, and 2010 numbers are up 3% to 5% in highly ranked elementary schools (Eastside). I am noticing that more and more people are choosing homes by the ranking of the elementary school than ever before. That has been a plus for the homes in highly ranked schools and a negative for the lower ranked ones.

    Prices have always been affected by School District and even High School. But this major variance based on Elementary School seems heightened since some public sites like Redfin are showing a rank for the elementary school.

    Also in reduced volume times the % of people buying with children is skewed to the high side, as people without children do not have a pressing “need” to be buying at all. So school ranking is clearly influencing prices more so in low volume than high.

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  12. 12
    Jonness says:

    By ARDELL @ 6:

    RE: Jonness @ 5

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you mostly counting the ones that weren’t good enough to keep?

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you overweighting the short sales and foreclosures?

    Seems “all inclusive” data would be at least equally relevant.

    The MLS median price methodology does not address changes of quality in the sales mix through time, while the Case-Shiller is specifically designed to address this.

    You might be surprised, but including less recent sales pairs in the data has no significant change on the overall valuation. However, the inclusion of homes purchased with low-priced non-Enterprise loans has a significant depressive effect on the measure. This is most likely due to foreclosure pricing at a discount as well as lower income homeowners performing less improvements, maintenance, and repair than more well-off homeowners. It could also be due to lower priced homes appreciating more percentage-wise than higher priced homes; thus, they have further to correct in order to get back to realistic valuations.

    At the end of the day, the Case-Shiller isn’t perfect, but it does a fairly good job at addressing the major weakness of MLS median price when used as a valuation measure. Typically MLS median price data is not used by professional economists as a tool to track changes in the valuations of houses because Case-Shiller is much better suited for this purpose.

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  13. 13
    Kary L. Krismer says:

    By Jonness @ 12:

    By ARDELL @ 6:
    RE: Jonness @ 5

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you mostly counting the ones that weren’t good enough to keep?

    When you ONLY count the houses that have “resold” in recent history, vs all sales, aren’t you overweighting the short sales and foreclosures?

    Seems “all inclusive” data would be at least equally relevant.

    The MLS median price methodology does not address changes of quality in the sales mix through time, while the Case-Shiller is specifically designed to address this..

    I’ll first note that later you say that C-S isn’t perfect, and that’s the point I’m about to make.

    As to that point, C-S does have to decide which paired sales to use and which to throw out. And they have to do that without having seen the properties. That means that the face many of the same obstacles as Zillow when it comes to the condition of the property. In a declining market they would likely be including too many properties where the condition is very poor and excluding ones that have been maintaining condition, because the former is more typical and the latter atypical. In a rapidly rising market the situation would be reversed.

    Right now there are a lot of houses selling that seemingly would only be bought by investor types, because the prior owner was either a total pig or they attempted a remodel that they only partially finished (or finished poorly). C-S needs to throw those out, but they have no basis for doing so other than price obtained.

    Also, I’m not sure how well C-S can possibly know neighborhoods. So let’s say there’s a house in one of Ardell’s good school areas that sold for slightly more than what it did in 2005. Is C-S going to assume it’s been fixed up since 2005 and throw that pairing out?

    Again, as you said it’s not perfect. I’m just pointing out the difficulties they face.

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  14. 14
    Jonness says:

    By Kary L. Krismer @ 13:

    In a declining market they would likely be including too many properties where the condition is very poor and excluding ones that have been maintaining condition, because the former is more typical and the latter atypical. In a rapidly rising market the situation would be reversed.

    Right now there are a lot of houses selling that seemingly would only be bought by investor types, because the prior owner was either a total pig or they attempted a remodel that they only partially finished (or finished poorly). C-S needs to throw those out, but they have no basis for doing so other than price obtained.

    I think that is correct. Due to REO’s making up a large portion of the market, the amount of down-weighting of these homes is decreased because they are less likely to be seen as statistically deviating from the overall distribution.

    Also, I’m not sure how well C-S can possibly know neighborhoods. So let’s say there’s a house in one of Ardell’s good school areas that sold for slightly more than what it did in 2005. Is C-S going to assume it’s been fixed up since 2005 and throw that pairing out?

    The sales pair would not be thrown out. However, the weighting of the home would be reduced if it deviated far enough from the statistical distribution. But if the home only sold for slightly more than it’s 2005 sale price (as in the above example), it’s weighting would not be reduced. In a typical large metro area, 85 to 90% of the sales pairs do not have their weighting reduced due to price deviation from the norm.

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  15. 15
    Kary L. Krismer says:

    RE: Jonness @ 14 – I’m pretty sure they do throw out pairs for either being too high or too low, but I’d have to go back and read their methodology again, which I don’t care to do right now.

    But my point was, assuming they do throw out pairs for being too high, they’d need to know the difference between a place selling in Skyway for more than in 2005 and Redmond (or wherever Ardell’s good schools are) for more than 2005. In Skyway that would probably be due to major improvements affecting the value.

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  16. 16
    Jonness says:

    I should point out that homes bought by investors at auction are more likely to be down-weighted because their price typically deviates from the market norm. In addition, the flipped sale of these homes is more likely to be excluded from the measure due to the typical short duration between an investor purchasing, renovating, and reselling the home. However, in a market like Las Vegas where an extremely large percentage of homes are bought by investors, I expect the lower prices would be seen as normal market behavior. I’m uncertain of the typical duration of the flips down there, so I’m not sure how many off the flips would be excluded due to short duration between sales. However, I expect the sales that get included would most likely be re-weighted because of the abnormal price increase over a short period of time.

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  17. 17
    Kary L. Krismer says:

    By Jonness @ 16:

    I should point out that homes bought by investors at auction are more likely to be down-weighted because their price typically deviates from the market norm.

    I agree, but I’m focusing on the ones that get through or weighted too high. Again, they have the same issue as Zillow in that they haven’t been in the properties. Zillow tries to statistically account for that too.

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  18. 18
    Jonness says:

    By Kary L. Krismer @ 15:
    Kary, I agree with the inability to handle the different neighborhoods being a problem. But I think these homes would be re-weighted as opposed to excluded. Either way, an error is introduced.

    If I had access easy access to the data, I could program the algorithm per neighborhood for the Seattle metro area to get a better indication of price changes. But I don’t have access to the MLS, and I doubt redfin would take kindly to me crawling their site. Also, I’d have to watch out for errors introduced due to insufficient sample sizes.

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  19. 19
    keith says:

    Hi – Keith from housingpanic here. I quit blogging a couple years back, after the cat was out of the bag, but googled case shiller today and found you. Still blogging? How do you do it?

    Yes, that infamous cocky ass quote from greg swanndive at bloodhound will haunt him forever. It’s one thing to be wrong, it’s another thing to be SPECTACULARLY, ARROGANTLY, STUPIDLY wrong, when IT’S YOUR BUSINESS TO BE RIGHT. How that dude is still in the realtwhore business is beyond me – his poor clients must not have google.

    Good luck out there everyone.

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