By Diana Hill, Online Trading Academy Real Estate Investor Instructor
Recently, many leading indicators have been published, so let's focus on them this week and go back to our series on demographic changes and their effect on the housing market next week.
We'll start by looking at the Case-Shiller Home Price Index. The index, dated January 26th, shows that the annual rates of decline continue to improve for the 10-city and 20-city composites, although we did see some price declines in November. January's report marks approximately ten months of improved readings in the annual statistics. This is the third consecutive month these statistics have seen single-digit decline, after 20 consecutive months of double-digit declines.
Figure 1 David M. Bilitzer, chairman of the Index Committee at Standard & Poor's, says "While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details."
Mr. Bilitzer points out four markets that all posted new lows, Charlotte, Las Vegas, Seattle and Tampa. But Los Angeles, Phoenix, San Diego and San Francisco have seen price increases for at least six consecutive months. The big one is that Dallas, Denver, San Diego and San Francisco have entered positive territory, something not seen in at least two years. Although this data does show that home prices are more stable than a year ago, it's not a sign of broad-based recovery.
Next, let's look at Pending Home Sales: There was a large decline in November, which was to be expected because the first time home buyer credit was set to expire. However, contracts in December bounced back up to levels even higher than last spring's market. Many feel this is a product of the extension and expansion of the home buyer credits. Lawrence Yun, chief economist for the National Association of Realtors, which is responsible for the Pending Home Sales Survey, said the swings from month to month are "masking the underlying trend, which is a broad improvement over year-ago levels."
A new index I'd like to introduce is the National PMI Index, considered to be one of the most accurate forecasters of housing value movement. This index signaled something potentially important this last quarter, "Overall risk has decreased" in the 381 metropolitan markets the survey covers. Causing the average risk rating for the U.S. to drop by 2.6 percent. It's not a BIG drop, but it's a positive signal.
The PMI Risk Index is produced quarterly by private mortgage insurance giant, PMI Group. The index is based on a statistical model utilizing economic growth data, real estate variables and market expertise.
Unemployment is still one of the largest indicators of the housing market and economic recoveries. In January, the number of unemployed persons decreased to 14.8 million, and the unemployment rate fell below 10 percent to 9.7 percent.
Figure 2 The truly concerning unemployment statistic is the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up in January, reaching 6.3 million. Since the start of the recession in December 2007, the number of long-term unemployed has risen by 5.0 million.
The last indicator we'll look at is GDP (Gross Domestic Product). This is the output of goods and services produced by the labor and property located in the U.S. GDP increased at an (seasonally adjusted) annual rate of 5.7 percent in the fourth quarter of 2009. This is according to the "advance" estimate released by the Bureau of Economic Analysis. The Bureau emphasized that the fourth quarter advance estimate released on January 29th is based on source data that was incomplete or subject to further revision. The "second" estimate for the fourth quarter, based on more complete data, will be released on February 26th.
So, in closing, things are headed in a positive direction. However, the shadow inventory of homes held by the banks that have not hit the market, a possible rise in interest rates, continued high unemployment and the expiration of home buyer tax credits by mid-year all say to me: Proceed but with caution and have a good plan that limits your risk.
Look forward to hearing from you.
Great Fortune,
- Diana Hill
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