Year-Over-Year Price Gains Rapidly Descending to Earth

Year-Over-Year Price Gains Rapidly Descending to Earth

Let’s take one more look at this week’s Case-Shiller data. Specifically, the rate of change in the year-over-year rate of change, also known as the second derivative.

First, let’s take a look at the direction the second derivative is moving in the 20 cities tracked by Case-Shiller. In this chart green dots represent cities with increases and red dots represent cities with declines. Click here for the super-wide version.

Number of Cities Experiencing 2nd Derivative (YoYoM) Gains, Losses

In April only Boston saw an increase in its year-over-year price gains, while in May only Tampa (barely) and Charlotte increased. The only other periods in the past that have seen so few cities with increasing price gains were the period immediately following the expiration of the homebuyer tax credit in 2010 and the periods immediately preceding and following the peak of home prices in 2006 and 2007.

Here’s a more detailed look at Seattle’s second derivative:

Seattle Case-Shiller HPI 1st & 2nd Derivatives

Seattle’s second derivative reading in May of -1.9 percent is the lowest level we’ve seen since December 2008.

Leading up to the home price peak in Seattle the second derivative was in the red for 17 straight months. Although the current level is comparable to the period in late 2007 / early 2008 when home prices in Seattle finally began to decline, we’ve currently only seen three consecutive months of negative readings on the second derivative.

I think it’s still a bit early to call another price peak, but the trend is definitely worth keeping an eye on. If things continue the way they have the last few months, we could definitely start to see price declines by this time next year.

  

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.

11 comments:

  1. 1

    Tim, IMHO you really should always include the MOM chart, like you used to back in this thread:

    http://seattlebubble.com/blog/2014/03/27/case-shiller-home-prices-weakest-since-early-2012/

    You only seem to have included the additional chart twice this year.

    Better yet, include another chart for YOY data. The second derivative is useful, but by itself it’s not that useful.

    Rate this comment: Thumb up 1

  2. 2
    Andrew says:

    Someone is betting on another global (including the US) recession in 2015.

    http://www.independent.co.uk/news/business/analysis-and-features/doom-and-gloom-2015-global-recession-warning-from-financial-seers-of-the-century-9624700.html

    Anything is possible.
    Especially, if one considers the Mexican standoff between Obama and Putin and a full-fledged war in the middle of Europe (reminds me the 1999) — almost unnoticed in the US media.

    Rate this comment: Thumb up 2

  3. 3
    Deerhawke says:

    I am not sure why there only need to be two options in real estate pricing– increase or decrease. If the year-over-year price rate of change decreases, that does not mean they are heading for a fall. It could also be an indicator that prices are leaving behind the period of rocketing growth and simply slowing down. Or reaching a nice sustainable plateau.

    If I were to make a guess about where prices are heading in Seattle, I would say that I see growth slowing down to a more routing pace of 3-5% per year, most of it occurring in the spring.

    Boring perhaps, but a lot more stable and sustainable than what we have seen since 2012.

    Rate this comment: Thumb up 0

  4. 4

    By Andrew @ 2:

    Especially, if one considers the Mexican standoff between Obama and Putin and a full-fledged war in the middle of Europe (reminds me the 1999) — almost unnoticed in the US media.

    Reminds me more of 1936.

    http://en.wikipedia.org/wiki/Remilitarization_of_the_Rhineland

    Rate this comment: Thumb up 4

  5. 5
    K Johnston says:

    What, though, of the demand issue for Seattle housing? 1-br apartments can only get us so far, and SFR demand has to be pretty substantial in coming years due to the influx of immigrants/workers. If demand drives housing (duh), even if we are at a near-high now, I don’t think that is the end of the story for coming years (even though I am one of those who believe a recession is coming)…

    Rate this comment: Thumb up 1

  6. 6
    Andrew says:

    By Kary L. Krismer @ 4:

    By Andrew @ 2:
    Especially, if one considers the Mexican standoff between Obama and Putin and a full-fledged war in the middle of Europe (reminds me the 1999) — almost unnoticed in the US media.

    Reminds me more of 1936.

    http://en.wikipedia.org/wiki/Remilitarization_of_the_Rhineland

    That would be even worse. At least for Europe.

    Rate this comment: Thumb up 1

  7. 7
    Erik says:

    RE: Deerhawke @ 3
    Yeah probably. I would love to see another busy though now that I have some cashola.

    Rate this comment: Thumb up 0

  8. 8
    Blurtman says:

    RE: Erik @ 7 – Erik, Wodka will put hair on your chest, but you might try cognac and kahlua.

    Rate this comment: Thumb up 0

  9. 9
    Shoeguy says:

    Prices went nuts for a year. 20% increases in prices nationwide with stagnant and declining wages was crazy investor driven nonsense.

    Now that investors are pulling out of the market, median prices will again struggle to regain parity with median incomes, just like they did after the ’08 crash.

    It’ll be interesting to see what kind of destructive policies the Fed and the WH will enact this time to try to juice house prices if prices start to turn down again.

    Rate this comment: Thumb up 3

  10. 10
    BacktoBasic says:

    By Shoeguy @ 9:

    Prices went nuts for a year. 20% increases in prices nationwide with stagnant and declining wages was crazy investor driven nonsense.

    Now that investors are pulling out of the market, median prices will again struggle to regain parity with median incomes, just like they did after the ’08 crash.

    It’ll be interesting to see what kind of destructive policies the Fed and the WH will enact this time to try to juice house prices if prices start to turn down again.

    Inflation. Seattle min wage will be $15/hr. The landlord will jack up your rent with will totally elimate the wage gain. The cost of min wage will show up in the bill because business ower has to offset the cost increase due to wage increase. Your salaried owner will suffer not only from housing inflation but other price increase.

    Rate this comment: Thumb up 4

  11. 11
    Christian Wathne says:

    By Deerhawke @ 3:

    I am not sure why there only need to be two options in real estate pricing– increase or decrease. If the year-over-year price rate of change decreases, that does not mean they are heading for a fall. It could also be an indicator that prices are leaving behind the period of rocketing growth and simply slowing down. Or reaching a nice sustainable plateau.

    If I were to make a guess about where prices are heading in Seattle, I would say that I see growth slowing down to a more routing pace of 3-5% per year, most of it occurring in the spring.

    Boring perhaps, but a lot more stable and sustainable than what we have seen since 2012.

    I think you’re spot on with this comment

    Rate this comment: Thumb up 1

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