Before we put away the Case-Shiller data for another month, let’s check in on the second derivative. For an introduction to this particular view, hit the original post from March.
First up, the plot of both the first derivative (year over year changes) and the second derivative (month over month changes in the year over year data):
The second derivative is still well into the black as year over year price changes continue to move rapidly up toward zero. Unless we start to see the second derivative head back into negative territory, it still seems quite reasonable to assume that the year over year value will be in the black before the first half of this year is over.
But that’s just Seattle. In order to get a more broad look at the data from all twenty Case-Shiller cities, I created this chart, in which each green square represents a city with a positive second derivative, and each red square a city with a negative second derivative:
Things were clearly the most negative from 2006 through 2008, and then again in late 2010 and early 2011 after the tax credit buzz wore off. Here’s an even longer-range view of this chart, stretching all the way back to 2000 (the earliest that Case-Shiller reports on all twenty cities):
The last few months have actually more or less resembled the more “normal” pre-bubble market of the early 2000s. I still doubt that we’ll be returning to the frenzied increases of the bubble days any time even remotely soon, but I do think that the trend suggests that price declines are nearing an end in most markets.
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” but I do think that the trend suggests that price declines are nearing an end in most markets.”
These charts, and graphs are in no way predictive. It’s sales data based on all of the market forces you have pointed out, like the feeding frenzy.
In my opinion buyers need to step back, and look at what the residential real estate market just went through, take into account the tax credit, which boosted pricing, and factor in the fact most every one selling Real Estate today has a very vested interest in propping up prices.
Let’s not forget the historically low interest rates to tie the consumer into 30 years worth of debt.
Prices will continue to decline. There are no fundemental financial reasons for the price of property to continue at these historically high prices.
All of that said, there are market places, and properties that are good values today. I’m surprised by the down town condo market, especially in South Lake Union. I think some of those buildings are ahead of the curve on pricing, and that neighborhood is turning out great.
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By David Losh @ 1:
In yesterday’s thread I was just critical of you for claiming the data was predictive:
By David Losh @ 15:
I agree with you in this tread. Not predictive. Trends can change for any number of reasons.
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RE: Kary L. Krismer @ 2 – Kary
Kary, Trends in real estate are slow-moving. Directional changes happen normally after significant forces in play move the buyer/seller relationship in the opposite direction. It seems the sellers are more in control now than buyers.
If it changes, it won’t be overnight, just like 2006-2008.
Chuck
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RE: Chuck Ponzi @ 3 – I agree trends can be long-lasting, but change to the trend can occur quickly. I would further agree that the effect of that change in trend can be long lasting (what you call slow moving).
In 2007 we had the mortgage crisis, and in 2008 we had the broader financial crisis. Those both caused a downward trend in the market at a time, and the second one is possibly still going on.
It won’t be overnight, however, because closings typically take 30-60 days.
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A big ket to future prices is the relationship between the Fed and the .gov, one that is growing more strained every day.
http://hotair.com/archives/2012/04/26/fed-to-wh-were-not-going-to-bail-you-out/
As a side note new inventory is showing up all over the place out here in the woods and prices have clearly firmed up. Zillow says my house is now worth about 50% more than I paid for it just a couple months back. While driving home late last night I think I saw a pink pony down by the river. But it may have been a bear . . .
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RE: Scotsman @ 5 –
Of course, despite all their claims to the contrary, Zillow appears to pull numbers out of their butt. However, if it makes you feel good to believe that your house is now worth 50% more than what you paid for it, more power to you.
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To read tomorrow’s post on Case-Shiller movement, everyone will need either a 3D monitor or a Holodeck.
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RE: Ira Sacharoff @ 6 –
Zillow is god. Fall in line, you bearded cynic.
Their butt? I knew there was something smelly about the whole thing.
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RE: Ira Sacharoff @ 6 –
Like here’s one:
http://www.zillow.com/homedetails/26511-114th-Pl-SE-Kent-WA-98030/48935696_zpid/
This home has been on the market for nearly 2 years(!)
Yet somehow the Zestimate is 21K higher than the asking price.
And if you look at the chart, the curve for the region points down, but there’s a small uptick in the Zestimate (which again makes no sense since it’s not selling at the lower price anyway).
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By John Bailo @ 9:
Not a good example because that listing is a short sale.
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RE: Scotsman @ 5 –
Let’s hope for your sake that it wasn’t a bearish pink pony.
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RE: patient @ 11 –
Or this guy: !!!!! (Caution- NSF, rated R for language)
http://www.youtube.com/watch?v=m7pGZudN8rE
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RE: Scotsman @ 12 –
Haha, man that’s awesome. Thanks for the laugh, though the Seattle pink ponies are pretty bad @ss, must be some cross breeding with the honey badger.
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Second derivative increasing means home prices are getting suckier much less quickly…
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RE: m-s @ 14 – I’m holding out for Fourier transforms of Case Schiller, or at least Mueller calculus, which I maintain is relevant. Blindingly Relevant!!!
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RE: ChrisM @ 15 – At this point, I will have to resort to Google. ;-)
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Zillow’s Crystal Ball Foggy
“..Zillow has taken out its crystal ball and made some predictions on where the housing market will go this year.
The real-estate company sees home values continuing to fall in 2012, but not as much as they did in 2011. Overall, Zillow predicts a national decline of 3.7% this year, compared with 4.7% last year….”
http://realestate.msn.com/blogs/listedblogpost.aspx?post=23936cc3-e078-4df7-b862-3f608f070b9c&from=en-us_msnhp
Of course about 8-9 months ago Zillow predicted a possible 2012 house price bottom too, apparently incorrect to the more recent Feb 2012 prediction.
http://mynorthwest.com/800/544539/Predictions-for-2012-What-will-hit-bottom
I want a job at Zillow, they still pay ya whether you’re right or wrong.
.
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RE: ChrisM @ 15 – Heh … how about phase space analysis/prediction?
(Emphasis on spaaaace) …
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RE: ChrisM @ 15 –
Its easy to see that there would be a strong 12 month frequency component in the FT, corresponding to the spring bounce/fall flop cycle. What puzzles is that it means the SAME house, if sold in the fall/winter (no matter what time of year it was LAST sold?), sells for less, relatively speaking…
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RE: David Losh @ 1 –
You stated that you didn’t see any fundamental reason why prices should go up. Like everything in this world, it is all about supply and demand. Current levels of inventory are less than three months, money is historically cheap, and buyers can buy a home for less than they can rent one. Just an observation.
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RE: Mark Kirshner @ 20 –
Because it’s thirty years worth of debt on an asset that is losing value. In a thirty year cycle a lot can happen. What we just saw was a building boom, in ten years millions of housing units were created.
We have had traditional thinking that we need to have a house, a yard, the family home, passed on from one generation to the next. Well, that has changed, it will continue to change.
More people will retire into condos, houses will be sold off, young people will build stock portfolios, travel, and do business internationally.
Our world of working at Boeing to retire in the family home has changed. So I don’t see the financial sense of buying into a thirty year debt.
Even if you pay it off, the thinking of the consumer has changed, and will continue to change.
Is it an asset worth keeping?
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