Case-Shiller: Home prices fall in January

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The large number of foreclosed homes, combined with a high unemployment rate, has depressed the home market since a real-estate bubble burst in 2007. Many Americans, especially younger people, lack the financial means to buy a home despite ultra-low mortgage rates.

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Is there a stat that relates home prices to median income, perhaps by percentile or demographic? As a young guy, home prices just seem too high. And we all know how the bubble was, did we actually hit the floor, or could it actually worsen in the next decade or so.

Found one.



But part of me also is curious about demographics. Because the baby boomers represent the wealthiest age group. So if more and more leave the market which most should be just about out, would that have an effect?

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I saw were building permits jumped 5.1% from Jan 2011 to January 2012 (from 682,000 to 717,000). This is the first increase of this size since 2008.

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Talking about this? In case you don't know, I direct you to the "Explanatory Paragraph" at the bottom of the press release:

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EXPLANATORY NOTES
In interpreting changes in the statistics in this release, note that month-to-month changes in seasonally adjusted statistics often show movements which may be irregular. It may take 2 months to establish an underlying trend for building permit authorizations, 4 months for total starts, and 5 months for total completions. The statistics in this release are estimated from sample surveys and are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting, and undercoverage. Estimated relative standard errors of the most recent data are shown in the tables. Whenever a statement such as “2.5 percent(±3.2%) above” appears in the text, this indicates the range (-0.7 to +5.7 percent) in which the actual percent change is likely to have occurred. All ranges given for percent changes are 90-percent confidence intervals and account only for sampling variability. If a range does not contain zero, the change is statistically significant. If it does contain zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease. The same policies apply to the confidence intervals for percent changes shown in the tables. On average, the preliminary seasonally adjusted estimates of total building permits, housing starts and housing completions are revised about three percent or less. Explanations of confidence intervals and sampling variability can be found on our web site listed above.

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Just saying, those numbers move around a lot to try and take anything out of a one month data point.

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Also, I've been looking at real estate stocks (from REIT's to home builders etc) and they have done very well since October with some having doubled in 3-4 months.

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Well the S&P as a whole is up 1416.51/1131.42-1 = 25% in that time frame and every report I saw from homebuilders (Lennar, Beazer, KB) was shite, so I'm not sure I believe that market movement is worth anything. REITs are so levered to begin with any movement in the market is going to be amplified there, up or down, so again not sure I put much stock in that market performance as some kind of forward-looking indicator.

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I think real estate is going to do very well over the next 5 years.

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It certainly may, although that's depending on your definition of "very well." Not falling year over year or simply moving up 2 or 3 percent annualized isn't "very well" IMO. If you're banking on bubble-type moves again I would love to hear your hypothesis there.

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REITs are so levered to begin with any movement in the market is going to be amplified there, up or down, so again not sure I put much stock in that market performance as some kind of forward-looking indicator.

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It's not just REIT's that are doing well. Builders etc. like TOL, MDC, and LEN are looking great.

When several stocks in a sector are outperforming the market (100% to the upside for various RE stocks vs. 25% upside for the market) it is definitely worth noticing.

Notice I haven't said I'm a buyer yet. I would like to see a move to the downside that doesn't make a lower low.



I don't expect bubble like behavior from the RE market stocks. I do expect a steady uptrend though.

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what are you basing that on

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I'm basing my guess on real estate stocks performing well long term on a few things...

1. The housing index $HGX hasn't made a lower low in over 3 years. It is also very close to breaking it's 2010 high after failing to make a lower low in 2011. I'm big on chart technicals and that screams being close to long term bottom to me (if it's not in already)

2. The increase in building permits. Which as you hint, isn't definite proof, but is another "data point." I should add here that building permits have lead the CS home prices by 6-12 months.

3. The amount of real estate stocks outperforming the market the last four months by wide margins.

I'm not in real estate yet but look to rotate out of commodities and into real estate in the next year or two. If in the next significant correction in the market (which could be 1 year + away) we don't see new lows in real estate stocks it'll be time to buy IMO.

C-S 20-City HPI
(Year, High, Low)
2007, 202.31 (Jan), 184.97 (Dec)
2008, 180.68 (Jan), 150.54 (Dec)
2009, 146.63 (Jul), 139.26 (Apr)
2010, 148.88 (Jul), 142.39 (Dec)
2011, 142.96 (Aug), 136.61 (Dec)
2012 --> 135.46 (Jan)


Also, the C-S 10-City HPI has been calculated since January 1987. In August 1989 it was 82.08 when the CPI-U was at 124.6. For January 2012 (22.5 years later) it was 148.40 when the CPI-U was at 226.665, thus being lower in real dollar terms.