By Diana Hill, Online Trading Academy Real Estate Investor Instructor
Let's start by looking at the Case-Shiller Index. This Index, published November 24 (the last published index at the time this article was written), showed an increase of .27% for the 20 City Composite Index (C-20), and a .36% increase for the 10 City Composite Index (C-10). The Case-Shiller Index is seasonally adjusted, meaning that because real estate is seasonal, the Index makes adjustments so that January's Index and September's Index (for example) are measured the same.
How did some of the individual markets that are tracked by the Case-Shiller Index do? San Francisco, CA recorded the largest monthly increase of any city at 1.71%. San Diego, CA increased 1.05% last month. It was good to see that Detroit posted a 1.25% increase for the month; the Detroit market has been hit very hard by the economic downturn and unemployment. Other areas that had monthly increases over 1% were the Twin Cities, up 1.31%, and Chicago, up 1.11%.
On the downside were markets like Cleveland which was down 1.20% for the month, although it is actually among the healthiest cities if you look at prices on a year over year basis. "…The housing bubble was not centered on the beaches of Lake Erie; it was centered on the beaches of Southern California and Florida," said Dirk van Dijk, Director of Research at Zacks Investment Research.
Certainly Las Vegas and Phoenix have been the heaviest hit and have yet to show an increase in prices.
One theory is that the increases in home prices are temporary. The government has taken extraordinary measures to prop up prices and those measures are not sustainable. They include things like the tax credits now scheduled to end at the end of April 2010 and the Fed's program of buying up $1.25 Trillion in mortgage-backed paper to help keep interest rates low. The question to be answered is whether the free economy can kick in once the government intervention has stopped?
On the positive side, nationwide housing affordability is at the highest level since the data was first compiled 18 years ago. The Housing Opportunity Index (HOI) showed that 70.1 percent of all new and existing homes sold in the first quarter of 2009 were affordable to families earning the national median income of $64,000.
Indianapolis was the most affordable major market; almost 95% of all homes sold were to households earning the area's median family income of $68,100. Some of the other major metro housing markets were Youngstown-Warren-Broadman, Ohio-PA and three of Michigan's metropolitan areas.
At the same time affordability brought good news to the market, nationwide housing production fell 10.6% in October after there had been small increases ever since May. Some attribute the drop to builder hesitation of whether the first-time home buyer tax credit would be extended while others attribute it to the fact that the industry has yet to rebound.
As I see it, unemployment is one of the most important statistics that we should focus on since it impacts the housing market so dramatically. On December 18, according to a Government report, more states reported declining unemployment in November than posted increases. The last time we saw the rates decline in more states than climb was in April. Wells Fargo's senior economist Mark Vitner said, "It's an encouraging sign that something different is happening, but I still believe unemployment is headed higher from here."
Figure 1 Mark Vitner supplied a great frame of reference to better understand where we currently stand. "...In a normal economy, 100,000 people enter the work force each month. As the economy recovers from the worst downturn since the Great Depression, that number should double each month for at least a year." To keep up with that rate, it would mean that more than two million jobs would have to be created over the next year. "We're not that far from a point where job gains will outweigh job losses, but that's not enough to reduce the unemployment rate." As a result, Vitner believes that even as layoffs continue to slow, the unemployment rate will climb to a peak during the middle of 2010.
There are some positive signs says Joseph Brusuelas, an economist at Moody's Economy.com in Westchester, Pennsylvania. "The rebound in business profits suggests the labor market deterioration is in its final stages, barring a relapse in financial conditions. With more sustained improvement in final demand, we see net job growth resuming in the second half of 2010."
Great Fortune!
- Diana Hill dhill@tradingacademy.com
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