Tag Archives: housing prices

Chicago region home prices back to April 2000 levels

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Data from the S&P/Case-Shiller suggest that Chicago area home prices have returned to levels from early 2000:

Home prices in the Chicago area hit a new post-housing crisis low in March, falling to levels not seen locally since April 2000, according to the widely watched S&P/Case-Shiller home price index, released Tuesday.

With the most recent decline, average  home prices in the Chicago area have fallen 39 percent since they peaked in September 2006, according to the index…

Much of the pricing pressure was on homes that sold for less than $139,182, as the average selling prices for those properties in March fell 3.4 percent from February and were down 9 percent from a year ago and reflects the impact of distressed homes on the market. That puts the pricing environment for lower-priced homes akin to where it was in April 1995…

“We’re beginning to see more stability in the overall numbers,” Blitzer said. “The housing situation in the United States, while certainly not booming, is seeing some stability and possibly some gains going forward. Prices will be the last thing to go up.”

As the article notes, economist Robert Shiller has expressed skepticism that housing prices will rise anytime soon.

While there may be a lot of worry about foreclosures (and Illinois ranks poorly here as well), the issue of depressed housing prices might linger even longer. The wealth that people expected to incur through their house has, on average, been reduced to 2000 levels. Another way to interpret the data above is that on average, people who have bought a home since April 2000 can’t expect to make any money on selling their home now. This could limit people’s abilities to move and purchase homes as well as change how they think about homebuying.

 Zillow just put together a new map of the United States based on what % of homeowners are underwater. The map has more people in the red than one might hope:

The real estate information website Zillow has compiled its data from the first quarter of 2012 to build this map, showing just how much negative equity there is among the homes in many counties. Deep red along the west coast, throughout Florida and in the Great Lakes region serve as a harsh reminder of the chronic troubles these areas are still struggling to control…

In the worst hit counties, more than half of the homes are underwater. Clark County, Nevada – home to Las Vegas – is among those in the unfortunate top 1 percent, with 71 percent of homes underwater. For the vast majority of homes here, the amount owed is more than 200 percent of the value. Clayton County, Georgia, part of metro Atlanta, has an astounding 85 percent of its homes underwater.

This article from 24/7 Wall St. breaks Zillow data down even further to name the ten cities with the highest rates of homes with negative equity. Las Vegas, Reno, and Bakersfield are the worst performing cities in the country, with rates above 60 percent.

While the situation is certainly bad in many, many parts of the country, four-fifths of all counties in America have fewer than 35 percent of their homes underwater, according to the map. But it’s still a widespread problem – and one that seems to be growing. More than 31 percent of all homes in the country are underwater, according to these first quarter 2012 numbers from Zillow, a jump from the 28 percent the company noted a year earlier and the 22 percent the year before that.

It could take a long time to reverse these trends.

Economist Robert Shiller: “we will never in our lifetime see a rebound in these [housing] prices in the suburbs”

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Economist Robert Shiller suggests there is a “real chance” we may have a long way to go before the US housing market recovers:

Many young people are choosing to live at home for a longer period of time instead of buying. Moreover, would-be homebuyers are settling into modern apartments and condominiums, further hindering a housing rally. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.”

A perpetually sluggish housing market, which Shiller believes has become “more and more political,” might push the country in a “Japan-like slump that will go on for years and years.”

I imagine there are a lot of people who hope Shiller is very wrong. If you watch the full video here, Shiller also suggests there is a chance for a rebound. The discussion is based on this data:

Home prices in January were flat compared to the prior month, suggesting stabilization in the market, but home values fell for the fifth-straight month and prices dropped to their lowest levels since 2003, according to the Standard & Poor’s/Case-Shiller Home Price Index. Housing prices declined 3.8 percent on a year-over-year basis. The index measures the value of home prices in 20 U.S. metropolitan cities.

The key prediction here is that suburban housing prices may not rebound for decades. What are the implications of this? I wonder if this means that we may finally witness a suburban growth plateau, meaning that because people will have more difficulty moving in and out of their houses, suburban growth will have to slow. Of course, this may change after a few years as people adjust to their mortgages and either move out of being underwater or pay enough off to make some money when they sell. But there would still be fewer people looking for homes, leading to less demand for new homes.

 

At least some builders says McMansion may not be dead yet

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Amidst suggestions that McMansions are being “shunned,” McMansions should be subdivided, and homebuyers want denser, walkable communities, at least some builders suggests McMansions may not be dead yet:

Wilson said builders are taking the slow approach toward embracing the younger generation of buyers, who are buying homes and starting families later in life.

“Most builders are still in recovery mode and remain cautious with any revolutionary concepts,” he said. “The one consistent thread is that the buyer continues to shop hard.

“Housing is in a recovery mode, but the consumer is still looking for the best deal he can find.”

Baby boomers set the tone for housing in recent decades, but their influence is starting to wane, Wilson said.

“This is not to say that the McMansion is dead – far from it,” he said, “just that the following generation – the Gen X group – is not as large as the preceding group.”

And most of the millennial or 20-something buyers aren’t yet ready to commit to home ownership – particularly after the decline in values they have witnessed in many areas of the country.

“I’ve heard that some of the new homes in California are getting a lot smaller, but I don’t see how that works around here,” said Jimmy Brownlee, Dallas-Fort Worth regional president for K. Hovnanian Homes. “Our buyers aren’t asking for that. We are trying to open our houses up and give them more light.”

This builder and others (described as “stumped builders” in the headline) sound like they are waiting to see what will happen in the housing market in the near future. Several factors are at play: the state of the economy and the housing industry, regional differences (Dallas vs. California), and generational differences as the Baby Boomers transition to retirement and younger buyers are more skittish.

From this article alone, it sounds like regional differences could play a big role. In places like Kansas City and Texas, house prices never got out of hand in the same way as California, Las Vegas, Florida, and Arizona. Therefore, continuing to build somewhat bigger homes might not be such a stretch, even in a tough housing market.

Also of note in this article is the suggestion that the homes may still be fairly big but they not have all the amenities like granite countertops or a deluxe bathtub. I’ve suggested before that smaller homes may not necessarily be cheaper, possibly due to more upscale furnishings or due to a more desirable urban/denser location.

Discussing the mortgage interest deduction and how pricy (and large) a McMansion is

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One common use of the term McMansion is simply a large home. In this blog post about the mortgage interest deduction, the writer contrasts the price of McMansions to more normal-sized homes:

That means average homeowners with modest Capes and fixer-uppers are helping subsidize others stretching to keep up with the Jones and their million-dollar McMansions.

The measuring stick of a McMansion in this post is how large the mortgage is:

A close look at the interest rate deduction reveals much of its benefits go to homeowners with mortgages far larger than most in the middle of the housing pack. Check out this Forbes piece, which nicely lays out the argument for taking away this perk from the homeowners with outsized mortgages – incredibly the limit is currently $1 million…

The president’s deficit commission recommended capping the deduction’s use at $500,000 in mortgage debt, down from $1 million now, while nixing its use for vacation homes and converting what’s left to a 12.5 percent tax credit.

OK, I vote for keeping it simple and just lowering the mortgage cap to $500,000 or $600,000, while making second homes ineligible as well.

So a McMansion here would start with homes that cost $500,000 to $600,000. In most suburban communities, this buys a large home. In denser areas, not necessarily. What about older homes that cost this much – are these McMansions? It wouldn’t take too much searching online of real estate listings to translate these prices into square footage in particular areas.

Overall, this use of the term McMansion seems to refer to any large house beyond “modest Capes and fixer-uppers.” This use of the term seems quite vague: a McMansion is any (presumably larger) house above a certain price point.

Housing prices dropping in places where it wasn’t supposed to keep dropping (like Seattle)

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It has been well-documented that the housing crisis has had a strong effect on places like Las Vegas and much of Florida. But this report suggests the drop in housing prices has spread to places once thought to be immune to these drops, such as Seattle:

Now, though the overall economy seems to be mending, housing remains stubbornly weak. That presents a vexing problem for the Obama administration, which has introduced several initiatives intended to help homeowners, with mixed success.

CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.

It has been a long, painful slide. At the peak, a downturn in real estate in Seattle was nearly unthinkable.

In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.

Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.”

A risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.

These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off. Those who must sell close their eyes and hope for the best.

It doesn’t sound good for sellers in a lot of places.

It would be interesting to know more about why certain cities were thought to be immune. I can think of a few explanations off the top of my head: certain markets didn’t experience a big boom in prices in the 1990s-2000s so there wasn’t much room for prices to drop; certain areas attract jobs and employees so there will be more people always look for housing; and certain didn’t experience building booms so there isn’t a glut of houses or units to be sold. Does one of these explanations fit Seattle?

Let’s hope the “new normal” in housing doesn’t look like Merced County, CA

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A USA Today article about the “new normal” in US housing uses Merced County, California as its main example. The situation there is not good:

The median home price, $116,000, is down 68% from its peak in 2006. Three of five homeowners with a mortgage here owe more on their loans than their houses are worth, compared with about one in five nationally.

While the situation is particularly dire in Merced County, it is also not great in a number of other places:

Nationwide, home prices are down 30% from their 2006 peak. Moody’s Analytics economist Celia Chen says national home prices will regain that ground by 2021.

Some areas will take far longer. In 22 U.S. metropolitan regions, most in California and Florida, home prices won’t return to their 2006 peaks before 2030, Chen estimates. That includes such cities as Miami, Detroit, Phoenix, Las Vegas and Riverside, Calif.

And a USA Today chart shows the counties with the most mortgages underwater: Clark County, Nevada (where Las Vegas is located) is at the top with 71.1% of mortgages underwater. Overall, there are 17 counties over 50% and the top 30 on the chart are all over 46%.

This is a long-term issue for these places, particularly if housing values for the whole country aren’t expected to reach the 2006 peak until at least 2021.

Hottest housing market: Israel

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Amidst housing troubles in many developed nations, an unlikely hot housing market has emerged in Israel:

Israel, despite perennial fears of war, has emerged as one of the hottest – and least likely – property markets in the world: Since real estate collapsed around the globe in 2008, at least one industry watchdog lists it as the fastest-rising property market on earth…

According to Global Property Guide, a trade magazine that monitors the housing market, Israeli housing prices in the second quarter of 2010 rose sixth-fastest in a ranking of 36 countries. Four of the top five, including Singapore and Latvia, were rebounding from sharp price drops. So looking at the past two years ended in June – the last period for which there is data – Israeli real estate clocks in at No. 1.

For Israel, where high-tech and science are booming businesses, the property price spike is the latest claim to fame. But it’s one officials aren’t boasting about, given ample evidence of how an imploding bubble can shatter decades of economic growth.

What is interesting to note is that Israeli officials are working to cool down the housing bubble so that their country doesn’t join other nations in experiencing a burst housing bubble. If their actions are any indication, might most developed countries now pursue policies that try to even out the housing market over time to avoid any possible issues with booms or busts? And if so, how effective can central governments be in attempting to control the housing market?