‘Double-Dip’ in Housing Prices Even Worse Than Expected

U.S. single-family home prices dropped in March, dipping below their 2009 low, as the housing market remained bogged down by inventory and weak demand, a closely watched survey said Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas declined 0.2 percent in March from February on a seasonally adjusted basis, in line with economists’ expectations.

The price index was below the low seen in April 2009 during the financial crisis. The glut of houses for sale, foreclosures, tight credit and weak demand have kept the housing market on the ropes even as other areas of the economy start to recover.

The 20-city composite index was at 138.16, falling below the 2009 low of 139.26.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” David Blitzer, chairman of the index committee at S&P Indices, said in a statement. “Home prices continue on their downward spiral with no relief in sight.”

You can read about it here . . . . but this is what I have feared and been warning about.

My entire family – wife and daughters are musically gifted.   I hear them play.  I hear them compose.  I watch with pride as my youngest daughter wins awards and ovations and scholarships with her magical flute . . . and none of this impacts the real estate business.

Music is not about business.  (Just ask someone who knows a lot of musicians!)

And Perrysburg house prices are not normally musically relevant.

But some guys have shown the last 10 years worth of Case-Shiller numbers as a musical score.

They even hired a great baritone to sing the arrangement as opera!

Now, even people who are musically gifted can grasp the real estate market in Perrysburg.  (True story – some music genius’s I know who shall remain nameless claim they can see music notes, tones, and sounds as “colors”.  Seriously!  How messed up is that?  I have a hard time seeing the difference between black and blue . . . )

I have been doing A LOT of appraisals this week.

And that is good.  (We also are negotiating a HUGE number of offers – so I know that Spring has Sprung)

And the numbers are not good for sellers.

Sorry if this makes you sad.  But like all free markets, for every sad seller there is a glad buyer.  The January 2011 Case-Shiller numbers have been published this week.  They point to a very pronounced “double dip” in the housing market.

Perrysburg (and Sylvania, and Ottawa Hills, and Monclova/Maumee) has not been wiped out like many parts of other local towns have been value wise. (How bad?  I just had to tell an out of town owner that his house was worth -$10,000 today.  Think about that . . . !)

Remember my thesis – right now the numbers in Toledo are paralleling those in Detroit.

First the big, national Case-Shiller chart:

There is your double dip.

None of us are going to enjoy this ride.

Next the numbers.  Note the Detroit data.  Metro Toledo numbers feel about like that to me . . . about -8% for the year.   Remember your mileage may very based on your exact location, condition, floor plan, etc.

I will show you one more chart – just because I am into bad news today.

New construction?

Here’s your new construction!   It has hit the absolute bottom.  Amazing.

News you can ignore:

1. Portugal is next.

2. Ireland is broke.

3. Bond holders are going to get haircuts – painful ones.

4. Federal employees are not going to get one type of pay increase for 2 years (but they get other ones . . . )

All* safely ignored in sleepy little Perrysburg Ohio.

*Unless you are a Federal employee, planning to vacation in Ireland, and your mutual funds are long in bonds to Portugal . . .

News you CANNOT IGNORE:

It’s simple.

The goose to buyers and sellers by the 2010 tax credit has ended.

Jobs are still not being created.

Almost all residential construction is dead – with thousands of people unemployed because of the cessation of new home builds in Lucas and Wood Counties.

And because of the end of the tax credit hangover and the general trends of the economy . . . we are seeing signs of the “double dip”.

Most denied it could happen.

Most said it was unlikely.

Most forecast that it was not possible.

But behold:

Case-Shiller says prices are going down across the board.

Again.

In the Winter.

Plan.  Prepare.  Be informed.  The watchwords of today’s real estate market.

Advice I am giving to potential sellers:  don’t sell unless you really need to.

Advice I am giving to sellers that really need to:  make sure you really need to sell.

Advice I am giving to sellers that are sure that they really need to sell: there are too many houses for sale given the buyer activity we have right now – let’s find out how we can work together to sell your house in this environment.

The WSJ has an interesting missive out today - about the glut of houses on the market.

Interesting reading:

“Pending sales, signed contracts on the purchase of new homes tracked by the National Association of Realtors, were down 3% in June compared to May. That month saw a 30% drop in the index, after the April 30 expiration of the home buyer’s tax credit.

The pending sales numbers point to more alarming home sales figures, wrote Credit Suisse analyst Dan Oppenheim in a note Tuesday. Mr. Oppenheim said that given the sales pace, we’re on track to sell 3.7 million homes total this year–-the lowest seasonally adjusted level of single-family existing home sales since the fall of 1996.”

I read elsewhere that a major US builder does not want anymore tax credits or Federal home buyer stimulus.  “Just let the market work” was their plea.

The housing market is tough right now – investors from out of state are buying 100 to 400 houses in a single auction.  You want to compete against that?  In Toledo? “Gird your loins” as they say.

In Perrysburg we are not at that point (and never will be . . . !) but the dynamic pressures just to the north of us still impact this market.   When housing values plummet close by it hurts us.

Great listings are still in demand.

Great buyers are still coming to PBurg.

Enjoy the Glut if you can!

All markets are local.

They are all different.

I talked to a Long & Foster agent in suburban D.C. today.  He said that 65% to 75% of the houses for sale in one of his marketing counties are “REO” aka foreclosed.

Perrysburg?  Not even close.

The most recent Case-Shiller Home Price study came out on Friday.  The average home lost 19% in their study.   Which is made of matched pair sales in major metropolitan areas.  Toledo is not included.

But Detroit is.  And the average house value in Detriot is now what it was in 1997.

An “11 Year Drop”.   A regression.  A retreat.  A decline.

What of Perrysburg?  The median sold price for Perrysburg Single Family homes in March of 2009 was $146,450 according to our local MLS.

This represents a -25.7% decline in the past 24 months.

Which is a 1% drop in value per month over the last 2 years.

Which is a lot “better” than 1.5% per month that a lot of other markets have experienced.

If you NEED to sell, you need to understand these numbers.

These numbers might influence your decision.

Your houses’ potential buyer, appraiser, and lender understand them!

Sadly there is no Case-Shiller study for Perrysburg.

Our market is too small.

And too nice.

And too friendly.

But I digress.

The Case-Shiller study of residential home prices, which I have written about before, is a matched pair study.

Only the exact same houses are included, when they have sold and resold.

So it is pretty accurate as least as far as the lack of “adjustments” that applied by appraisers when trying to make different houses look and act and price the same.

But I digress.

Which I am doing a lot of this month when thinking about the Case-Shiller numbers.

Why?

Because I operate on a couple of standard assumptions.

1. You reap what you sow.

2. Practice and hard work make you succesful, not MLM’s.

3. Detroit = Toledo.  At least as far as real estate values go.  Generally.  Mostly.

And the 12/2008 Case-Shiller numbers say that Detroit real estate lost, on average, 21.7% in value during the previous 12 months.

The latest Case-Shiller chart?  Reminds me of Deer Valley in Utah.  And that’s a beginner hill there!

Which kind of takes your breath away.

And makes you want to digress and diverge and divest and maybe even weep.

But – I have to remember and remind my clients that Detroit is not Perrysburg.  And that if you waited to buy, congratulations, you just made more money.  And that you and your 401k probably would be ECSTATIC over a 21.7% decrease.

But still – that’s a huge, unprecedented decline.

Is it over?

Are values firming up?

Time will tell.

I don’t think that there is another -21% left to give.

But then almost no one thought this COULD happen 4 years ago.

Our local paper was kind enough to interview me for a comment on their story about the recent NAR housing price numbers - which show that Toledo is now a very, very affordable town to buy a home in.

One number that I shared with them was the huge price drop in one zip code in Toledo.  A 75% price drop in January 2009 vs. 2007.

How can that be?

75%???

The answer is that over 50% of the sales in the City of Toledo in January were distressed sales.

So these numbers – these horrible numbers are skewed.

Because of WHO is selling and WHY they are selling.

After all, it’s not “regular owners” who are selling.

It’s the banks that they now own!

Median prices of homes in Toledo – which depending on how you measure them – can actually NOT indicate their current value.    These numbers represent the average disposal prices that it takes to clear them in this market in view of their status as assets that need to be disposed of by financial owners.

A better measure of value is the Case-Shiller index of RESOLD HOUSES.

More on that later . . .

Sellers need not despair.  Not now.