It’s not common to see various seemingly contradictory articles on the housing market. Some indicating the recovery of the housing market, some rejoicing about increasing home sales prices, followed by articles indicating the housing market is at its lowest volume in a decade and some even contradicting others stating prices are still dropping. What does this all mean? 
How can someone sift through all this information and expect to get a clear picture of how the market really is. The truth is that we have no absolute way of predicting the future and can only compare historic information. Economists use what’s called regression analysis to create estimates of where they feel markets will go, but as many people know the housing market has been difficult to predict. It is not an exact science. Therefore given that information, what can we do? We can try to look at patterns and then make assumptions about what those patterns may tell us. Here is what we know so far.
U.S. home prices did increased in 2013, but the market seems to have cooled in its final months, according to two home price reports.
Home prices jumped 11.9 percent in 2013, compared to a year before, according to the S&P/Case-Shiller Home Price Indices. The index ended its best year since 2005, says David M. Blitzer, managing director and chairman of the S&P Dow Jones Index Committee.
“However, gains are slowing from month to month, and the strongest part of the recovery in home values may be over,” Blitzer says in a release. “Year-over-year values for the two monthly composites weakened, and the quarterly national index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum.”
Case-Shiller’s 20-city composite index showed a monthly decline of 0.1 percent in December.
The biggest losers were:
•Cleveland : -1.2 percent
•Minneapolis: -0.7 percent
•Chicago and Seatlle: -0.5 percent
The metro areas with the biggest monthly gains were:
•Miami: 0.9 percent
•Las Vegas: 0.4 percent
•Tampa, Fla.: 0.3 percent
So what does that mean?? What Blitzer is saying is that while home prices did increase overall in 2013 (on a yearly bases compared to the year before), home prices began to taper down on month to month bases towards the end of the year. In some cities, like Chicago, the last month of the year, Dec has a negative rise in prices (meaning prices of homes actually dropped). He then assumes that this is an indication of a “cooling market”. This may not be the case. There may be other reasons prices dropped in Dec, like say the weather (more on that later). To be fair he does mention a seasonality adjustment but we don’t know what that is and we had one of the worst winters in years.
The FHFA Index
Another home price index, released Feb 25th, produced a similar trend line. The Federal Housing Finance Agency’s, or FHFA’s, house price index rose 1.2 percent in the fourth quarter of 2012, the 10th quarterly price increase in the seasonally adjusted index. But the index rose only 0.8 percent in December.
“Home price appreciation in the fourth quarter was considerable, but more modest than in recent periods,” states FHFA principal economist Andrew Leventis. “It is too early to know whether the lower quarterly growth rate represents the beginning of more normalized price appreciation patterns or a more significant slowdown.”
Leventis has taken a more conservative approach to the data than Blitzer, seeming to want to wait and see when data comes out for 2014 before making assumptions.
Why are there differences between the indexes?
To put it simply, the indexes use different algorithms to determine their calculations.
The FHFA’s home price index is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac (the two largest entities responsible for the conventional mortgage market).
The Case-Shiller composite index is based on the value of homes in 20 metro areas from across the country. The index tracks repeat sales to compare values of homes for the same properties over time.
Moving into this year…
Sales of existing homes dropped in January to the lowest level since July 2012 and are 5 percent below the stride of January a year ago. Meanwhile, median prices for existing homes nationally rose by 10.7 percent from a year ago, to $188,900. This is different than the above estimate because it’s from Jan to Jan (versus Dec to Dec).
One assumption, according to the National Association of Realtors, is that an unusually cold winter is hindering housing activity. “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception,” Lawrence Yun, chief economist for the National Association of Realtors, said in a release. “At the same time, we can’t ignore the ongoing headwinds of tight credit, limited inventory, higher prices and higher mortgage interest rates.” Severe weather is also playing a big part in delaying appraisals as well as a lot of other buying and selling activity like home inspections, final walk-throughs and repairs required prior to closing. Some houses in the Midwest still have two feet of snow all around them. This winter we’ve had what many call one of the harshest winters in decades.
Given that the prolonged winter weather is certainly playing a part in slower activity, it’s not the total picture. Potential buyers have much on their minds other than housing, including how the US’s new health care legislation and a continued weak economy (more specifically a weak job market) will affect their future incomes.
Don Frommeyer, president of National Association of Mortgage Professionals thinks weather is the main culprit. He recently stated that the slow real-estate market was “75 percent weather-related,” He, as well as many of the nation’s top economists, believes the market will thaw as the months grow warmer. The good news is, at least for the near future, Frommeyer expects mortgage rates to remain pretty stable, which will help drive both home buying and refinancing.
