S&P: “Home Prices Likely to Lose Steam”

October 8, 2009

by Scott Sambucci


An interesting release in my inbox this morning from Ratings Direct® (Standards & Poor’s) from September 30, 2009:

Based on recent data, many market observers now believe the U.S. housing market is likely to reach bottom by early 2010. Positive trends aside, however, the current rally may soon lose its momentum as the season turns from summer to fall and winter, which are typically much slower than their warmer counterparts. In addition to the change in season, the rising national unemployment rate and high level of foreclosure-driven distress inventory are additional factors fueling the anticipated additional 10% decline in home prices through early 2010.  (Check out the complete statement here.)

Here’s some data we’re seeing that substantiates this release:

Leading Indicators Case Shiller Home Price Index

According to our data models, the 90-day rolling average of median list prices hits an inflection point in early August, then moves consistently down each week this Fall.  By early October, the Altos 10-City Composite (which consists of the same ten markets as the S&P/Case-Shiller Home Price Index) shows that ask prices are down about 1.25% from the early August numbers.

An alternate look at on-market properties reveals wider pessimism by sellers entering the market this Fall:

US Home Prices 2009

Notice the wider spread between the overall market median ask price and the new sellers entering the market this Fall, especially compared to the early Spring 2009? In the Spring, new sellers saw the start of the market’s price acceleration and price their homes more optimistically. This trend continued through the Spring and into the early summer.  However, once market activity slowed in the summer months, new sellers hitting the market began pricing more pessimistically. A similar trend is evident at the end of 2008 on the above chart.

It’s likely that more sellers entering the market in the second half of the year are more motivated – they are more frequently in distressed or pre-distressed situations. (Ask any agent on a case-by-case basis about the selller who lists on March 1 versus the seller that first lists on October 1…)  This year, there’s:

In any case, it’s clear that the data is stacking up against the continuation of home price acceleration into the Fall.  Because the S&P/Case-Shiller reports data on a 90-day rolling average basis, the strength we saw this Fall in transaction prices represent market activity in the Spring – contracts that went pending in April, May, and June, then closed in June, July, and August.  That’s an important piece that many forget about the timing of the index.

It’s another three weeks before the Case-Shiller index numbers are released for August.  They might continue to show higher values in the short run, but a real-time look at the market shows the price acceleration wanes this Fall.

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