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 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.
A little over two months ago I wrote a long and ponderous post on the administration’s scheme to help homeowners in trouble and cure the housing crisis. I wasn’t very nice about it. I cruelly suggested that it might not help the 1 in 9 homeowners that the Treasury suggested might be helped. I feel bad about that. I even implied that the strong moral leadership provided by the Treasury’s guidelines would not be enough, that actual legislation would be required.
You must understand, this was in early March, back when things were really grim. Unemployment was rising and house prices seemed to be falling every month. I let my despair overcome my natural American optimism about all the good that government can do if we all chant “Yes, we can!”
Now that May has brought warmer weather and a buoyant stock market, let’s revisit the administration’s housing effort with all the optimism and cheerfulness that it deserves. So two months into it, how is it going? Great. Well, pretty good. Not bad. To be honest, fair. A little less than expected, but it’s still early days. Okay, really crappy, but we’re working on it.
Today brings another dollop of data on the housing market. The Wall Street Journal carries a story about a drop in real estate listings in April. An outfit called ZipRealty reports that listings were down 3.6% from March. In general, April is an up month, with the average monthly increase since 1982 being 4.8%, so the down tick is significant. Listings were off 21% from April 2008.
This could be an indication that the number of sales will be down in the coming months, which as I have written before, is bad news if you are a real estate broker.
But what if you are an ordinary reader of the WSJ concerned about house prices, both because it’s a central issue in the current crisis and possibly because you may yourself own a house? Then this isn’t news at all. Fewer listings could mean that the supply of cheap houses is being exhausted and soon buyers will start bidding up the prices of what’s left. Or it could mean that sellers have become discouraged and have pulled their houses off the market, waiting for conditions to improve. Or half a dozen other reasonable scenarios.
There is another video on the Big Subprime Mess making its way around the personal finance blogosphere. It doesn’t really compare to the now legendary Crisis of Credit Visualized, and in fact most of what it has to do with subprime mortgages is that it is called “Subprime”. But it has appeared on (at least) two blogs, Clever Dude and MoneyNing.
It’s a clever bit of animation. But it’s not exactly a cogent argument that, in the words of MoneyNing “sums up what everyone was doing during the last decade but it also brings up a good point – When is enough really enough?”
Given all the attention generally paid to mortgages, and especially recently, you might think that the basic principles might be widely understood. Alas, no. See, for example, and I cite it only as a typical example, Suze Orman’s 2009 Action Plan, in which she addresses the advisability of borrowing using a HELOC (Home Equity Line of Credit, essentially a second mortgage on your house) to pay off credit card debt.
Do not do this. Even if you have enough equity to keep your HELOC open, this is a dangerous mistake. You are putting your house at risk. When you borrow from your HELOC, your home is the collateral. [page 30.]
That has a strong, almost visceral, intuitive appeal. And as strident as Orman is, she is fairly typical in her warnings against “putting your house at risk.” (See this from the Times a while back.) But it is pretty poor advice for many, probably most, people.
All advice in this blog is guaranteed to be worth at least what you paid for it, or double your money back. All persons dealing with matters of personal finance are advised to gather information from blogs, books, radio and TV, consult with professionals, discuss the matter with anybody who will listen, and then make their own decision. Because it’s their money.
good sign. Perhaps things are looking up and we are just not that worried about home prices any more.
Economics, Housing, Robert Shiller | Frank Curmudgeon | 
May 27, 2009 8:00 am | 
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