… on the other hand his counterpart, Robert Shiller of Case-Shiller fame, does not see the real estate market near bottom.
Wellesley College economist Karl Case, the “Case” in the widely followed S&P/Case-Shiller index of U.S. housing prices, says he thinks that the housing market may be near a bottom. If he is right, financial firms may be able to breathe a sigh of relief.
At its most recent reading for June, the Case-Shiller index was 19% below its July 2006 peak, and many analysts say the decline is far from over. The inventory of unsold homes on the market is still very high, they point out, and until that excess is absorbed, it is a buyers’ market. Moreover, financial firms, hobbled by mortgage debt gone bad, are trying to rebuild cash reserves, making the firms less willing to extend loans to would-be buyers.
And the combined effects of the housing and credit crises have damaged the balance sheets and credit-worthiness of many households, leaving them a high hurdle to buying a new home. Yale University professor Robert Shiller, the co-creator of the Case/Shiller index, is among those who think it will be some time before prices stabilize.
But in a paper presented before the Brookings Institution in Washington yesterday, Mr. Case argues there is cause for optimism. He notes that of the 20 metropolitan areas covered by the Case/Shiller index, nine have shown prices slightly improving in recent months. He also says that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps.
That last sentence is particularly intriguing.
“He also says that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps.”
That means to me, if true, that when home prices do indeed bottom out that home prices may return more quickly than I expected to “normal” appreciation and that it’s less likely that home prices will troll along the bottom for a few years after bottoming out.
That is, we may see home prices move more like a “V” instead of an “L” after home prices bottom out.
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Heather 09.17.08 at 8:49 am
I’ve been thinking about the relationship between income and housing prices a lot lately, and also seeing a potential “V” recovery for the Valley.
First time homebuyers are a big part of my biz, and their incomes haven’t risen much in recent years. Entry level incomes certainly didn’t keep up with rising home prices in ‘05 and ‘06. Many college educated workers start out in the low $30,000’s in the Valley.
That sort of income qualifies a buyer for a purchase price of about $90,000 to maybe $120,000 depending on other debt. $90-$120k currently buys a nice, older condo or patio home near the central Valley or a newer, 3bed, 2bath home if you’re willing to commute 30-45 minutes to work.
A few ZIP codes I track have many homes for sale in this price range, are very close to a normal level of inventory. All in all, I’m thinking the bottom price ranges might be very close to the bottom of their downward price spiral.