Just Out: Happy–Talk on Housing?

Well, it depends on which chart you want to look at, I suppose, as the Case Shiller/S&P/Dow Jones monthly housing report is out.  Based on a consistent 20-city sample, I take this one as the “gold standard” of real estate price reports:

New York, April 29, 2014 – Data through February 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the annual rates of gain slowed for the 10-City and 20-City Composites. The Composites posted 13.1% and 12.9% in the twelve months ending February 2014. Thirteen cities saw lower annual rates in February. Las Vegas, the leader, posted 23.1% year-over-year versus 24.9% in January. The only city in the Sun Belt that saw improvement in its year-over-year return was San Diego with an increase of 19.9%.

Both Composites remained relatively unchanged month-over-month.

Thirteen of the twenty cities declined in February. Cleveland had the largest decline of 1.6% followed by Chicago and Minneapolis at -0.9%. Las Vegas posted -0.1%, marking its first decline in almost two years. Tampa showed its largest decline of 0.7% since January 2012.

“Prices remained steady from January to February for the two Composite indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks. The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even there prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.

“Despite continued price gains, most other housing statistics are weak. Sales of both new and existing homes are flat to down. The recovery in housing starts, now less than one million units at annual rates, is faltering. Moreover, home prices nationally have not made it back to 2005. Mortgage interest rates, which jumped in May last year and are steady since then, are blamed by some analysts for the weakness. Others cite difficulties in qualifying for loans and concerns about consumer confidence. The result is less demand and fewer homes being built.

The real bet with the prices (not the year on year change above) is that it looks like prices have gone flat and – if this is the case – then there is some reason for concern that no, real estate prices don’t always go up.

The data is never conclusive – there is always next month’s data to come.

And, for sure, with interest rates as low as they are now, even if prices might seem a bit high, there is the prospect that total cost of ownership might remain about flat from here, since while housing prices could come down, interest rates going up – even a bit – could mean the cost of owning might go up even as values come down.

And that’s where we get back to the problem for the Fed tomorrow.  How will they play rates?

There’s a lot riding on getting this right.  A whole country, in fact.