Tuesday, May 27, 2008

Case-Shiller: Real Prices off 21% from Peak

by Bill McBride on 5/27/2008 12:34:00 PM

Here are three key graphs ...

The first graph compares real and nominal Case-Shiller Home Prices (real is current index adjusted using CPI less Shelter).

Real and Nominal Case-Shiller National Home Price Indices Click on graph for larger image.

In real terms, the Case-Shiller National Home price index is off 21% from the peak. Real prices are now back to the Q3 2003 level (nominal prices are back to Q3 2004).

With existing home inventory at record levels, prices will probably continue to decline over the next few years - perhaps another 20% in real terms on a national basis.

Here is an update to the scatter graph comparing existing homes Months of Supply and the quarterly change in the Case-Shiller National index (hat tip Langley Financial Planning blog for the idea):

Note: this graphs uses data since Q1 1994. In prior periods, Months of Supply appeared to be higher with less negative impact on prices, see 2nd graph of Existing Homes: Months of Supply vs. Real Prices

Months of Supply vs. Nominal Case-Shiller Prices This graph compares the Months of Supply and the quarterly change in the nominal Case-Shiller National Home Price index. The best linear fit has been added to the graph (plus the formula with an R2 of 0.665).

This is a limited amount of data (since Q1 1994), but this does suggest a relationship between price changes and Months of Supply (something we would normally expect). This suggests when there are more than 7 months of supply, nominal prices will decline (with some variability).

In April, the existing homes Months of Supply hit 11.2 months, and will probably be over 12 months this summer. This suggests nominal price declines of around 5% in Q2.

Case-Shiller Selected Cities The third graph shows the price changes for several selected cities. Prices are falling faster in the 'bubble' cities, like San Diego, Miami, and Las Vegas.

Year over year prices are also falling in areas that saw less price appreciation, like Denver and Cleveland. It's important to note that different areas - even different parts of the same city - are seeing different price changes. See: House Price Mosaic for some analysis.

Eighteen of the twenty cities in the Case-Shiller composite saw declining prices in February (prices in Dallas were up 1% and Charlotte prices were flat), led by a 4.5% one month decline in Miami, 4.4% in Las Vegas, and over 3% in Los Angeles, San Francisco, Phoenix and Tampa.