FHFA, the oversight agency for Fannie Mae and Freddie Mac, released their monthly US Housing Price Index for April. The index shows some stabilization since January however, April is the last month of the federal tax credit for first time buyers and existing homeowners so it would be reasonable to expect declines over the next 2-3 months.
U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. The previously reported 0.3 percent increase in March was revised to a 0.1 percent increase. For the 12 months ending in April, U.S. prices fell 1.5 percent. The U.S. index is 12.8 percent below its April 2007 peak.
The index lags NAR’s Existing Home Sale by one month but it is a repeat sales index rather than an aggregate report. The index tracks Fannie and Freddie purchases mortgages where they acquire the paper or provide a guaranty, which dominates the mortgage business and provides the standardization that the secondary mortgage market relies on. This promotes liquidity of the US mortgage market but is limited to conforming mortgages of $417,000 in most of the country and $729,750 in designated high priced housing markets like the NYC metro area.
As a result of its data source, this repeat sales index is NOT a proxy for the US Housing market because it is skewed toward the sub-million housing market, roughly 80% of the US housing stock but is performing much better than the remainder because of the standardization provided by the former GSEs (Fannie and Freddie) and the backing of the federal government. Still, it represents the majority of the US housing market and warrants observation.
Since I am wary of seasonal adjustments my chart tracks the non-seasonally adjusted index, even though the press release relies on seasonal adjustments – the trend is the same but the month over months vary somewhat.
Robert Moses, the Master Builder of New York, famously uttered these words at the groundbreaking of Lincoln Center in NYC.
You cannot make an omelet without breaking eggs.
I highly recommend The Power Broker by Robert Caro (and his LBJ trilogy) that chronicles Moses’ life but make sure you dedicate a lot of time – it’s a long read.
Amid the scrambled (sorry) state of financial reform going on in Washington right now is the underlying newly realized immovable object and the likely outcome for Wall Street:
Ok, eggs not a great analogy but I needed to squeeze one of my favorite quotes of all time in somehow. Lower leverage is in the future of Wall Street. Take lower risks and there are lower returns to firms eventually translating into lower compensation, translating into tempered housing demand.
This Monday federal regulators finalized guidance on a hot topic as of late: executive compensation:
The final guidance is similar to what the central bank proposed in October, but would now apply to the entire banking industry. Previously, its efforts targeted only holding companies and state-member banks…
The final guidance did not change the three initial goals of the Fed’s proposal: providing incentives that appropriately balance risk and financial results and discourage risk taking; matching “effective controls and risk management”; and supporting corporate governance.
Risk, risk, risk
Senior Economist David Belkin of NYC’s Independent Budget Office received a flurry of media coverage for his post titled “Wall Street Wages: A Rough Ride on Easy Street:”
Much has been made in recent months of last year’s record profits on Wall Street, the myriad ways (near-zero interest rates, bailouts, accounting rules changes) that government policy boosted those profits, and the seven or eight figure bonus packages that some Wall Street executives awarded themselves from those profits. There has been less said, however, about what happened to aggregate wages and salaries across the securities industry in New York City in 2009. Not only did wages fall, but the fall was the steepest in modern history—including the Great Depression.
Adjusted for inflation, average wages in the securities industry plummeted 21.5 percent in 2009 and 24.6 percent over two years.
A key economic engine in the New York City metro area that provides 25% of personal income and 5% of the employment and creates 2.5 private sector jobs for each securities job, this should also be a concern for sustainability of the current level of housing demand.
Ironically Wall Street has been telling us this for years: past performance does not guaranty future returns.
NAR released its May existing home sales report today. This was one of the most bizarre existing home sale reports I can recall.
First of all, the expectation of a drop in sales activity was widely expected due to the end of the federal tax credit, yet economists surveyed were anticipating an increase in sales in May? Real estate professionals were bracing themselves for a decline in sales in May.
Economists surveyed by Dow Jones Newswires expected existing-home sales to climb by 5.0%, to a rate of 6.06 million. The surprise decline followed two increases driven by a tax incentive for first-time buyers that the government enacted to spur a housing sector recovery.
I viewed the impact of the tax credit as “poaching” sales from the next 60-90 days rather than a vehicle to jump start the housing market. We really need jobs first.
But if you look closely at the data, M-O-M sales were up or flat in each of the 3 regions except the northeast, which posted an 18.3% seasonally adjusted decline.
The report headline was generally accurate “May Shows a Continued Strong Pace for Existing-Home Sales” if you remove the northeast from consideration.
Sales price showed the same pattern. While US prices were up 2.7% M-O-M, the northeast prices declined 2.2%.
My interpretation of this “Northeaster” centers around foreclosures. The south and west posted significant foreclosure activity and price declines nearly 2 years ahead of the northeast. The midwest hasn’t seen the same volatility as the other regions. Perhaps the west and south have been pummeled enough that they are actually seeing a bottom in both sales and prices trends. Foreclosure activity is flowing freely while the northeast seems to be lagging in that regard.
Ok, I’m reaching through generalizations but why the disparity by region?
Here are this month’s metrics:
In today’s WSJ there is a chart I made covering Manhattan absorption market wide by price segment – inspired by my monthly report series.
The article sort of suggests that condos are doing better than co-ops as a generalization, which isn’t quite correct or I am over analyzing the results. However, one thing is certain:
Absorption for lower-end condos and co-ops is being driven by conforming mortgage financing being more readily available than jumbo financing.
My takeaways from the chart are:
Absorption has greatly improved from last summer yet there is still a distinction in performance between the upper and lower end of the market.
I have a great conversation with Nicholas Retsinas, Director, Harvard University’s Joint Center for Housing Studies. He and his staff just released The State of the Nation’s Housing 2010, a must read overview of the challenges facing the US housing market.
Here are other resources published by JCHS.
Check out the podcast.
CoreLogic (Formerly First American) released their Home Price Index Report for April 2010
“The monthly increase in the HPI shows the lingering effects of the homebuyer tax credit,” said Mark Fleming, chief economist for CoreLogic. “We expect that we will see home prices remain strong through early summer, but in the second half of the year we expect price growth to soften and possibly decline moderately.”
Of the biggest markets, Washington DC best, Chicago worst:
Of the 50 states, Idaho and Illinois show largest YOY decline:
Notes: The index is a compilation of repeat sales transactions going back to the mid-1970s, from CoreLogic’s own property information and its securities and servicing databases covering all 50 states. The index tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales.
The report is the only major one I am aware of that breaks out distressed properties from actual – I tend to ignore the breakdown since I don’t see these markets as mutually exclusive. In other words, distressed properties compete with non-distressed and by simply removing the distressed properties from the mix, price trends of the non-distressed properties were still impacted by distressed sales.