Home Price Data Showed Housing Solid Long-Term Investment
US NATIONAL MEDIAN HOME PRICES
While the latest S&P/Case-Shiller home price statistics for 20 of the nation’s largest metro markets showed a 4.4 percent year-over-year decline, a closer examination of the data reveals that on average, these same markets appreciated in value by more than 50 percent over the past five years. November 8, 2007
“It’s important to keep things in perspective,” said Brian Catalde, president of the National Association of Home Builders (NAHB) and a home builder from El Segundo, Calif. “The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida and Arizona. In most other markets, price declines have been pretty modest.”
For example, in Chicago, home prices declined 1.3 percent between August 2006 and August 2007, while posting a 34.2 percent gain for the five-year period between August 2002 and August 2007.
Among the 20 markets surveyed by S&P/Case-Shiller, which represent more than 40 percent of the U.S. population, four posted home price appreciation rates of more than 80 percent over the past five years while 11 registered gains of more than 45 percent.
Home values in Los Angeles fell 5.7 percent in the last year — but even with this loss prices in L.A. are up 88.9 percent since 2002. In Miami, home prices dropped 7.8 percent between August 2006 and August 2007 while showing a price appreciation of 89.2 percent during the past five years.
The same pattern holds true in Phoenix and Las Vegas, which each posted yearly declines of 8 percent and 7.6 percent, respectively. However, home values surged 80.2 percent in Phoenix during the past five years and 83.2 percent in Las Vegas.
While housing is a cyclical business, experience shows that over time, home values will stabilize and then move upward with the next recovery, said Catalde.
“To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today – and that’s just not going to happen,” said Catalde. “Despite today’s housing slowdown, the cost of land, labor and materials required to build new homes continues to go up.”
Furthermore, Catalde noted that the rapid appreciation rates in 2003-2005 were clearly unsustainable over the long-term, and that housing typically increases in value slightly above the overall inflation rate.
Homeownership as a long-term investment has a track record that is virtually unmatched by any other purchase in terms of its real benefits, he added. Home owners today have a combined $11 trillion in equity in their homes, against which they can borrow to help pay for college tuition, medical expenses and other needs. And housing offers important tax incentives to make owning a home more affordable.
The S&P/Case-Shiller Home Price Index
Standard & Poor’s Case-Shiller home price index, è un indicatore che tiene conto del numero complessivo delle vendite della stessa proprieta’, a differenza di quanto avviene nel calcolo del prezzo medio monitorato dall’Associazione Nazionale degli Immobiliaristi. L’indice e’ attivo dal 1987 ed inizialmente era limitato alle 10 piu’ grandi citta’ statunitensi; dal 2001 il numero complessivo di centri residenziali considerati nello studio e’ stato portato a 20.
The S&P/Case-Shiller Home Price Index, the leading measure of U.S. home prices, released by Standard & Poor’s, through August 2007, showed:
– The annual growth rate in prices of existing single family homes across the United States continue their decline marking the 8th consecutive month of negative annual returns and the 21st consecutive month of decelerating returns;
– The average Home sales price delivered in 20 and 10 metropolitan areas declined again, the 21th consecutive slowdown since December 2005, a continued negative annual returns. The chart depicting the annual returns of the 10-City Composite and the 20-City Composite Indexes according to a report today from S&P/Case-Shiller:
– The annual returns of the 20-City Composite Index through August 2007, not seasonally adjusted so economists prefer to focus on the year-over-year change, fell by -0.7% from a month earlier to a level of 197.16 and year-over-year dropped -4.4%, the biggest year-over-year decline in the last 6 years since record keeping began in January 2001, from the prior month when fell by -0.4% from a month earlier to a level of 198.44 and year-over-year dropped -3.9%. The index declined in January 2007 for the first time since the group started the measure in 2001, and has receded every month since then. Economists forecast the gauge would decrease -4.0%.
– The annual returns of the 10-City Composite Index through August 2007, not seasonally adjusted so economists prefer to focus on the year-over-year change, fell by -0.8% from a month earlier to a level of 214.35 and year-over-year dropped -5.0%, the biggest year-over-year decline at levels not seen since late recession of 1991 when it fell by -6.3%, from the prior month when fell by -0.5% from a month earlier to a level of 215.94 and year-over-year dropped -4.5%. S&P/Case-Shiller’s 10-city composite index, has a longer history, The Chicago Mercantile Exchange last year began offering futures contracts based on that index. ( The year-over-year decline reported for the 10-City Composite is the lowest since July 1991. The lowest annual decline in this Index, which dates back to January 1987, was -6.3%, which was reported in April 1991).
“At both the national and metro area levels, the fall in home prices is showing no real signs of a slowdown or turnaround,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Year-over-year and monthly price returns are continuing to either move deeper into negative territory or are experiencing persistent diminishing returns. There is really no positive news in today’s report, as most of the metro areas are showing declining or vanishing returns on both an annual and monthly basis. Only two metro areas – Denver and Detroit – showed improvement in their annual returns and even those were reports of slightly less negative numbers.”
Tampa surpassed Detroit in August, reporting a double-digit annual decline of 10.1%. Detroit followed with -9.3% and San Diego with -8.3%. Remarkably, in August eight of the 20 metro areas reported their lowest recorded annual returns – these cities are Cleveland, Las Vegas, Miami, Minneapolis, Phoenix, San Diego, Tampa, & Washington D.C.
They are constructed to accurately track the price path of existing typical single-family homes located in each metropolitan area provided. Each index combines matched price pairs for thousands of individual houses from the available universe of arms-length sales data. The S&P/Case-Shiller National U.S. Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly.
The chart depicting the annual returns of the 10-City Composite and the 20-City Composite Indexes according to a report from S&P/Case-Shiller: The S&P/Case-Shiller Composite of 10 Home Price Index is a value-weighted average of the 10 original metro area indices. The S&P/Case-Shiller Composite of 20 Home Price Index is a value-weighted average of the 20 metro area indices.
The indices have a base value of 100 in January 2000; thus, for example, a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the subject market.
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