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. – David Blizter, Chairman of the Index Committee at S&P (from today’s Case Shiller home price index report).
Yesterday the National Association of Realtors released its Pending Home Sales Index for March. It showed an uptick from February – but then again it should given the seasonal factors involved. It showed an 8% drop from March 2013 and a 12% plunge from its peak in June 2013.
I wrote an article analyzing the devil in the detail. You can read it here: March Pending Home Sales.
I wanted to briefly touch upon the issue of price. I saw a comment in another article yesterday that asserted that “rising prices” were the only thing protecting the market from collapsing. Rising prices are actually bearish, because they make homes unaffordable for the first-time buyer, which historically makes up 40% of all home sales.
However, the price reports you see released, like today’s Case Shiller price report, are cited on a year over year comparison basis. But prices of new and existing homes peaked and have been in decline since last summer. In fact, while today’s Case Shiller report showed a year/year gain, there were price declines from January to February in 13 of the 20 cities that used in the C-S index: LINK. This is highly significant because the Case Shiller methodology overweights the price-effect from flippers. A flipper buys a home for $200k, spends $25k renovating it and flips it for $250k. That shows up as a 25% price gain.