S&P's Case-Shiller home price index reports are out and numerous press reports are highlighting the fact that in June 2011 average home values were down compared to June 2010 in all twenty of the cities used in the C-S study. There really is no way to sugar-coat that for homeowners in those cities except to point out that on a month-to-month basis things don't look nearly so bleak this year. If you own a home in one of those cities, though, and you have been waiting to sell your home so you could move for a better job (or for any job), or just to move to a more affordable rental or a smaller mortgage, losing ground over the past year is bad news.
Ultimately, the problem still is the overvalued housing stock that was
purchased during the "bubble" in the middle of the last decade.
Since the downturn, foreclosures have dominated private sellers'
ability to set their sale prices, and significant "shadow inventory" of
foreclosures still to come allows little hope of this improving over
the next year or so. I disagree with policy solutions that cause
this process to take longer than it otherwise would, but whether we
drag this out for two or three more years or let the market "settle"
more quickly, allowing these properties to flow through the market will
be extremely disruptive and painful.
Still, the vast majority of these problems continue to be concentrated
in a handful of states, and even more concentrated in a relatively
small number of municipalities around the country. Much of the
middle of the country is relatively unaffected by the housing downturn
except as simply part of the national recession that we're all
experiencing. In Texas, the foreclosure rate is much lower than
California, Arizona, Nevada, and Florida have seen, and outside the
major cities foreclosures are very rare statewide.
Even in Austin -- not one of the Case-Shiller cities -- home values
have fared well over the past few years. Among the cities used in
the Case-Shiller indices, Washington, D.C. has been the best performer
since its local market bottom in early 2009. That does not mean,
however, that homeowners to bought in 2006 in the Washington area are
happy with their property values today. In Austin, on the other
hand, average values have held their ground and even gained some
through this difficult time:
If you purchased a home in the C-S cities before 2004 the odds are good
that your home value is still at or above what you paid, but if you
made your purchase in 2005-2006-2007 (or refinanced at those inflated
values), then there really is no silver lining in small monthly
improvements. Austin home values are up, on average, about 50%
since January 2000 -- roughly the same as the 10-city and 20-city
indices, but obviously the probability is much higher here that you can
sell when you choose to and at least breakeven, if not realize some
The recession-driven low-point for unit sales and average sale price in
the Austin metropolitan area was January 2009, just a few months before
the bottom for the Case-Shiller cities. This chart compares
year-to-year price performance since then:
Average prices in the Austin area have been up year-over-year in 15 of
the last 19 months. We definitely saw a dip in June, but the
magnitude was smaller than the C-S indices, and it followed a long
string of gains. The last annualized good news in the
Case-Shiller cities was in September 2010. Note also that
Washington, D.C. gained year-to-year in 18 of those 19 months, but
January 2009 was more than 40% below its year-before level, compared to
just a 10% dip in Austin.
Again, there's no way to put lipstick on this and improve the national
picture. The housing industry is troubled and is likely to remain
so for some time to come. But I encourage folks who already own
homes in Austin, or plan to, to keep the faith. Our fair city's
performance remains much stronger than national news stories will lead
you to believe, and as I have pointed out a number of times, sales and
value growth over the past twelve months have been "natural" -- i.e.,
without the distortion of tax incentives for home buyers. This
growth is truly a tribute to the underlying strength of our local and
regional economy, which remains robust and resilient.
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