Are home prices still falling?

An article published today in the New York Times talks about the prices of homes around the nation and the rate at which the prices are still falling. They make predictions on the future of the housing market as a whole and suggest that the worst is still to come.

I have a somewhat differing opinion on this topic – at least on a more local, “small town friendly” level. I’m by no means an expert in predicting economic conditions, but I can see flaws in their system for determining when and how home values will shift – again, when analyzing the market I live and work in.

First off, the primary reporting index used by these economic forecasters is the S&P/Case-Shiller Index. If you’re not familiar with the S&P/Case-Shiller index then click here to learn more and gain a better overall understanding of the index that’s the most widely regarded indicator of home values in the US. In a nutshell, it measures home values of previously-owned, single-family, re-sale properties in only 20 major metropolitan areas across the US. It measures month to month and year to year changes and then averages all 20 areas as an overall percentage of either incline or as we’ve become more familiar with lately, decline.

Here is a quick review of the numbers from the S&P/Case-Shiller index for July 2008 (these numbers show April 08 to May 08 and April 07 to April 08 changes – just to clarify – the index is measured and reported on the last Tuesday of each month and is on a 2 month delay. This July’s report will show changes in May)

City            April 08 v May O8   May 07 v May 08

Boston                  +1.66%           -6.20%
Chicago                 -0.41%           -9.40%
Denver                  +1.23%           -4.80%
Las Vegas               -4.85%          -28.40%
Los Angeles             -3.93%          -24.50%
Miami                   -7.23%          -28.30%
New York                -0.90%           -7.90%
San Diego               -2.53%          -23.20%
San Francisco           -1.93%          -22.90%
Washington DC           -1.91%          -15.40%
Atlanta                 +0.80%           -7.90%
**Charlotte             +1.35%           -0.20%**
Cleveland               -0.67%           -8.00%
Dallas                  +1.25%           -3.10%
Detroit                 -1.15%          -17.40%
Minneapolis             +0.79%          -14.80%
Phoenix                 -4.01%          -26.50%
Portland                +0.66%           -5.20%
Seattle                 -0.90%           -6.30%
Tampa                   -1.36%          -20.20%

20 City Average         -1.46%          -15.50%
(Source: Info reported is courtesy of TheRealEstateBloggers.com)

Looking at the S&P/Case-Shiller numbers for July 08 you may think it looks rough , but if you take a little closer look at some of these numbers you can definitely see a base forming in some of the lesser affected cities across the country.

You can see large declines since May 07 in several cities, as well as over 7% decline this month alone in Miami which on the surface may seem like gloom awaits us all. However if you really look over a few of the other cities in this survey you’ll see that cities like Charlotte, Boston, Denver, Portland and Dallas aren’t doing quite as bad as the more publicized cities like Miami, Las Vegas, Phoenix, etc. that you see all over the news.

You can research a little more and see that all the cities in blue above showed month to month increases even amongst tightening lending regulations. In all, 7 cities show increases in the July 08 report and the one most near and dear to our hearts here in Rutherford County, NC is Charlotte which shows the second largest percentage growth at 1.35% and the overall lowest decline since the same time last year at a steady -0.20% decline. 0.20% is minimal at best and when compared to other major metropolitan areas around the nation is actually quite good. Considering Charlotte is the second largest banking city in the US and it’s thriving economy has largely been successful because of the banking industries which have been hit hard lately it goes to show that the attractiveness of the area and the strength of the surrounding communities has proven Charlotte one of the most stable markets in the nation.

My biggest personal problem with using the S&P/Case-Shiller Index Report to measure the housing values in our market is that we’re not like the 20 metropolitan areas being measured by the index. The second problem I see with the index is that is only measures previously owned, re-sale, single-family properties and doesn’t include New Construction home sales or multi-family homes like duplexes or townhomes which have become more popular over the last 6 – 12 months. If we were only listing and selling previously owned, single-family, re-sale properties in the 20 measured metropolitan areas in the survey then I could put more trust and belief into this index. But for now, I’ll use my eyes and ears to guide my own personal forecasts for our local real estate market. Remember, “All Real Estate is Local”.

If you were to visit Rutherford County here in the Western North Carolina foothills you will quickly see that we’re a more rural area with a slower and more sustainable growth pattern with respect to areas like Miami, Las Vegas and even Charlotte which is only about 70 miles East of Rutherford County. To the best of my knowledge, I can’t think of a single large-scale, so-called “Tract Builder” that have received so much attention in the media the past year that is mass building on small 0.10 to 0.20 acre lots in our entire county. We also have seen more sustainable levels of growth throughout the real estate boom of the mid-2000’s. Don’t get me wrong, we have resort areas such as Lake Lure and several Mountain Communities that have seen large increases in growth over the past several years due to their seasonal markets and perceived limited availability and are now facing larger “drops” or “stalls” in prices. But, on a wide-scale overview of the county’s real estate market, the prices in our county have held fairly stable over the past year

The article can be read by clicking here, but all I ask is that if you are considering purchasing real estate in the coming months in our beautiful area of Western North Carolina, be careful and hesitant about making the decision on when to purchase based on the large indices seen in articles like the one found in the NY Times. If you wait until these indices say the “bottom” has been hit, you will have likely missed the best time to buy in our region since we aren’t quite as volatile as the measured metropolitan cities in the surveys and the fact that the reports are printed with a 2 month lag. Just think about it, once these reports come out and you see that the “true bottom” has been hit, we’ll be at least 2 months if not more past the “true bottom” and you’re opportunities to make the most off your investments will be limited.

I hope you have learned a little bit from this post about how and why I believe the media causes more trouble than benefit most of the time when talking about the housing market, because they report housing values, percentages and forecasts based on indices that they don’t give the public the full story about. When you realize that these indices don’t truly reflect housing values in every city and region across the US, I think you’ll see that you should begin the process of purchasing now before it is too late. Do your due diligence and fully research the market, but make sure you research the local market because as I said before and I’ll repeat again, “All Real Estate is Local”. That is such a true statement and should be the principle guiding factor behind your decisions on when and where to invest in real estate.

Thanks for reading. Feel free to submit or email me your comments, thoughts, ideas, questions, etc. I appreciate the feedback.