March House Price Update

Yesterday was the last Tuesday of the month, so it’s time for our monthly update from the good folks at S&P who bring us the only home price index worth watching, the Standard & Poor’s/Case Shiller Index.  This time ‘round the media coverage of the event was light, which I suppose I could spin as a Victorian House good sign.  Perhaps things are looking up and we are just not that worried about home prices any more.

But readers of this blog know I am a glass-half-empty kinda guy.  My view is that the media doesn’t consider the release of some data on house prices to be all that interesting, however important it might be.  Also, the release coincided with the release of some surprisingly strong consumer confidence numbers and a few other stories of the trivial type that the media likes to report on, like a Supreme Court nominee and some North Korean missile tests.

House prices are down.  That’s not exactly news. The Case Shiller 20 City Composite was down 2.2% in March from February, 18.7% from the previous March, and 32.2% from the July 2006 peak.

Numbers like these are hard to interpret outside of context and perspective. Here is a chart of the 10 City Composite index corrected for inflation since 1987.  (The 20 City Composite only goes back to 2000.)




I feel conflicted when talking about something like this.  On the one hand, I have a natural inclination to pessimism which makes me want to point out what a sharp downward slope we are on.

But I have an even stronger inclination to be contrarian.  On those rare occasions when everybody else is a pessimist I find myself, somewhat uncomfortably, an optimist.  And everybody seems to be a pessimist now. Even David Blitzer, chairman of S&P’s index committee, was quoted in the press release as saying that “we see no evidence that that a recovery in home prices has begun.”

If your definition of a recovery beginning is that prices go up, then no, there is no evidence of a recovery yet. But look closely and there are some hopeful signs.  Three of the cities in the 20 City Composite (Denver, Charlotte, and Dallas) did not go down in March.  Yes, 17 of them did have house price declines, but the last time it wasn’t unanimously down was August 2008.

Further, that chart above shows the current real price level nearing the 1989 peak, suggesting that prices may be soon be in a range that might be called long-run plausible.

And it is important to understand how stale this data is by the time we get it.  Yesterday’s release was of prices for houses sold in March.  Except that it’s not just March.  Mentioned on the S&P website but not in their press releases, or, unsurprisingly, in media reports, is the fact that what they give out is actually a three month moving average, meaning that the “March” number is really the “January to March” number.  Further, what is meant by houses sold in March is houses whose sales closed in March.  In general, they went under contract, with deposits made and a price set, a month or two previously.

So yesterday’s not entirely depressing data on house prices represents transactions agreed to during the period November ‘08 to February ‘09.  Those were some grim months. That there is just a glimmer of hope in the numbers, and there is, is something even I can be encouraged about.

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