Wednesday, 27 August 2008

US House Price Declines Slow - Case Shiller

Case Shiller Home Price indexes continued their record declines in June, the 10 city composite showing a year over year decline of -17.0% from a year earlier and is now down -20.3% from the peak whilst the 20 city composite showed a year over year decline of -15.9% and is now down -18.8% from it's peak.

However the year over year declines have begun to slow. The 10 and 20 city index year over year declines increased by a mere 0.1% in June. As the Case Shiller report suggests:

Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing. For the month, the 10-City Composite was down 0.6% and the 20-City Composite was down 0.5%. While still falling, these are far less than the 2-2.5% monthly drops seen earlier in 2008.

Let's be clear here, prices are still falling on a national basis, however the rate of those declines is slowing. Although as the cliche goes (and this one cliche I agree with ) all real estate is local. Again from the report:

In June, nine of the 20 cities were up month-to-month compared with seven in May. Nevertheless, not one market is showing a positive return over the past 12 months and seven of the metro areas are reporting declines in excess of 20.0%.”

So it's not all bad news on the US home price front but nor is it time to break out the champagne and sing happy days are here again.

Also of note yesterday was the release of New Home Sales data. The headline showed that sales increased 2.4% in July, in contrast to a decline expected by economists. However the increase is only after the June number was revised down substantially. So the actual number of sales recorded in July was lower than market expectations.

Again I will reiterate that the revisions to prior months are a better read on new home sales than the current month's data which carries an 11.6% margin of error. Anyone want to have a guess what direction July will be revised to next month?

The chart below comes from calculatedrisk - the best site on the web for US housing analysis. It shows that the actual number of sales (not seasonally adjusted) was the worst July on record since 1991. CR sums this graph up well with this line:
As the graph indicates, there was no spring selling season in 2008.

The good news from the New Home Sales report is that unlike the existing home sales data, inventories are coming down as shown below by the number of new homes for sale.

So what to make of all this? Firstly US home sales and prices are still falling, however the rate of decline is slowing. Also on the bright side, new home sales inventory is coming down. However we are far from a recovery in the US housing market and still not at a bottom in terms of either prices or sales, although there are tentative signs that we are edging closer to that reality.

One more observation, and this is with respect to the Australian Housing market. There is much optimism, a lot of it based falsely on the idea that the Australian housing market is different, that RBA rate cuts will spur a frenetic Spring selling season in Australia. As we saw in the United States this year, there is good evidence to suggest that will not materialize.