by Calculated Risk on 5/10/2011 11:25:00 PM

From David Leonhardt at the NY Times: Rent or Buy, a Matter of Lifestyle

...Mortgage rates are near record lows and will probably rise in coming years. Home prices may not be done falling, but they probably don’t have much further to go in most places either. Rents, on the other hand, seem set to increase, thanks to low vacancy rates.
...
[Y]ou can make just as strong a case in many places for renting. For starters, neither mortgage rates nor rents are likely to rise rapidly. Even more important, house prices, relative to rents, remain higher than their long-term average, especially in much of California, the Pacific Northwest and the New York region. In these places, among others, renting is often cheaper than buying — still.

I’ve made a near-annual habit in this column of looking at the rent-versus-buy decision, and The Times has built an online calculator so that readers can make their own comparisons. The idea isn’t only to help potential buyers but also to figure out whether and where house prices are overvalued. ....

As this year’s spring buying season nears its peak, the relative merits of renting and buying are closer than they have been since the housing bubble began inflating almost a decade ago.

The rent vs. buy decision is getting closer, but nationally the price-to-rent index is still a little high. Earlier today I updated the price-to-rent index using the CoreLogic House price index. The index has fallen to 1999 levels and is now only about 10% above the lows of the '90s. Of course there are also local supply-and-demand issues (many areas are seeing a high level of distressed properties coming on the market again), but with house prices still falling - and rents rising - this measure is getting close to normal levels.

Earlier:
• NFIB: Small Business Optimism Index declined in April
• CoreLogic: House Prices declined 1.5% in March, Prices now 4.6% below 2009 Lows
• Real CoreLogic House Price Index, and Price-to-Rent Ratio, back to 1999 Levels

by Calculated Risk on 5/10/2011 08:46:00 PM

So much for the $20 billion settlement, and it still isn't clear what would happen with the money ...

From the WSJ: Banks Float $5 Billion Deal to End Foreclosure Probe

The nation's biggest banks are willing to pay as much as $5 billion to settle claims by federal and state officials of improper mortgage-servicing practices, according to people familiar with the situation.

Such an offer is considerably less than the amounts sought by state and federal officials, some of whom are asking for more than $20 billion in penalties.
...
The banks intend to propose that as much as $5 billion be used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes, according to people familiar with the matter. One idea is that foreclosed borrowers could receive several months of free rent once they find new housing, one of these people said.

Didn't the banks say no one was "wronged" in the foreclosure process?

Earlier:
• NFIB: Small Business Optimism Index declined in April
• CoreLogic: House Prices declined 1.5% in March, Prices now 4.6% below 2009 Lows
• Real CoreLogic House Price Index, and Price-to-Rent Ratio, back to 1999 Levels

by Calculated Risk on 5/10/2011 03:51:00 PM

The percent of distressed sales in Sacramento declined in April compared to March, because of a seasonal pickup in conventional sales, but this is the highest percentage of distressed sales for the month of April, since the Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

This should be no surprise after Fannie and Freddie announced record REO sales in Q1. And we should see a high level of REO sales all year (putting pressure on house prices).

Note: I've been following the Sacramento market to see the change in mix (conventional, REOs, short sales) in a distressed area. Here are the statistics.

Click on graph for larger image in graph gallery.

This graph shows the percent of REO, short sales and conventional sales. There is a seasonal pattern for conventional sales (strong in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales increases every winter. The tax credits might have also boosted conventional sales in 2009 and early 2010.

Note: Prior to June 2009, it is unclear if short sales were included as REO or as "conventional" - or some of both.

In April 2011, 66.8% of all resales (single family homes and condos) were distressed sales. This is highest level of distressed sales for an April since Sacramento started breaking out distressed sales.

A high level of distressed sales suggests falling prices, and this data from Sacramento suggests further price declines in April.

by Calculated Risk on 5/10/2011 12:46:00 PM

By request, here is an update to a few graphs including the CoreLogic HPI released this morning (the March report is an average of January, February and March prices).

Nominal House Prices

Click on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index (through Q4 2010), and the monthly Case-Shiller Composite 20 (through February release) and CoreLogic House Price Indexes (through March release) in nominal terms (as reported).

In nominal terms, the National index is back to Q1 2003 levels, the Composite 20 index is slightly above the May 2009 lows (and close to June 2003 levels), and the CoreLogic index is back to January 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter).

Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q1 2000 levels, the Composite 20 index is back to December 2000, and the CoreLogic index back to December 1999.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller Composite 20 (through February) and CoreLogic House Price Index (through March).

This graph shows the price to rent ratio (January 1998 = 1.0).

Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices. In recent months, OER has been increasing - lowering the price-to-rent ratio.

On a price-to-rent basis, the Composite 20 index is just above the May 2009 levels (and about at November 2000 levels), and the CoreLogic index is back to December 1999.

I'll have more analysis when the March (and Q1) Case-Shiller index is released on May 31st, but the CoreLogic index suggests prices are back to 1999 levels in terms of price-to-rent and real prices.

Earlier:
• CoreLogic: House Prices declined 1.5% in March, Prices now 4.6% below 2009 Lows

by Calculated Risk on 5/10/2011 10:09:00 AM

Notes: Case-Shiller is the most followed house price index, but CoreLogic is used by the Federal Reserve and is followed by many analysts. CoreLogic reports the year-over-year change each month, and the headline for this post is for the change from February to March 2011. The CoreLogic HPI is a three month weighted average of January, February and March, and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Shows Year-Over-Year Decline for 8th Straight Month

CoreLogic ... today released its March Home Price Index (HPI) which shows that home prices in the U.S. declined for the eight month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 7.5% in March 2011 compared to March 2010. ... Excluding distressed sales, year-over-year priced declined by 0.96 percent in March 2011 compared to March 2010.

Click on graph for larger image in graph gallery.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index is down 7.5% over the last year, and off 34.8% from the peak.

This is the eight straight month of year-over-year declines, and the ninth straight month of month-to-month declines. The index is now 4.6% below the previous post-bubble low set in March 2009, and I expect to see further new post-bubble lows for this index over the next few months.