Home Price Trends: HOT=Portland NOT=Washington D.C. (NEW Graphs!)

Case-Shiller

Annual Home Price Appreciation
Feb 2015 – Feb 2016

Most Appreciation (within the 20 metros)

  1. Portland = +11.9%
  2. Seattle = +11.0%
  3. Denver = +9.7%

San Francisco dropped out of the top three appreciating cities for the first time in forever.

And it fell fast. Its annual appreciation rate fell from 10.5% in January to 9.3% in February.

Case-Shiller Hot

Least Appreciation (within the 20 metros)

  1. Washington DC = +1.4%
  2. Chicago = +1.8%
  3. New York = +2.1%

Washington D.C. overtakes Chicago as being the least appreciating Case-Shiller city with only 1.4% appreciation in the past year.

Washington D.C. was one of the “hottest” (really, least cold) real estate markets in the country from 2009 to 2011. Home prices in Washington D.C. bottomed out in 2009 while prices in most other cities continued to fall until 2012.

I don’t know exactly why Washington D.C. is doing so badly. If you have an explanation, let me know in a comment.

Case-Shiller NOT

Data Table – 20 Cities

Case-Shiller Chart

Full S&P Case-Shiller press release.


Zillow

EXCLUSIVE: You won’t see these graphs anywhere else online. They’re not even on Zillow.com, even though I get the raw data from Zillow.

“Percent of Homes Increasing in Value” is another way to look at how strong prices are in a city. Theoretically, it can help us peek around corners a bit.

Mojo – 66% or More of Homes Increasing in Value

  1. Portland & Phoenix gaining strengh
  2. San Francisco & San Diego losing strength

Zillow Increasing HOT

No Mojo – Less Than 66% of Homes Increasing in Value

  1. Detroit is losing strength
  2. No clear trend for rest of cities below 66%

Zillow Increasing NOT

 

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Zillow’s “Percent of Homes Increasing in Value” Dataset and Forecasting Prices

[This post just got a nice mention in The Washington Post! Awesome!]

Can this “secret” data help you predict future home prices?

“Percent of Homes Increasing in Value”

Here’s the concept. Even in a market with rapidly rising home prices, not all homes will be rising in price.

• Maybe homes on the outskirts of town are falling in value while most of the rest of the market is rising in value.

• Maybe luxury homes are falling in value while most of the less expensive homes are rising in value.

Whatever the reason, a rising metropolitan home price doesn’t mean all homes in the metro area are rising in price.

By looking at the percentage of homes that are increasing in value, you can get a better feel for the strength of any price trend whether increasing or decreasing.

That’s the concept anyway.

Zillow’s Increasing Values (%) vs. Case-Shiller Index

Zillow Percent Increasing Value 800px
Full-size, interactive version
FYI, you can see the Case-Shiller numbers for different metros on the same chart here.

Background

Zillow publishes a little known dataset called “Increasing Values (%).”

“Increasing Values (%): The percentage of homes in a given region with values that have increased in the past year.”

Zillow.com

I can’t find any current graphs or tables on Zillow.com that use “Increasing Values (%).” Perhaps they used to use it or they use it as a component to calculate market strength or something. Nevertheless, Zillow is still updating the published dataset monthly.

Introduction. I first became intrigued with this concept – that the percentage of homes increasing in price can give you clues about future market and price trends – when I read Weiss Analytics promoting it.

Cool concept. It was a cool concept but I needed to see some time series data to decide whether it actually foreshadowed home price changes. Weiss Analytics doesn’t publish their time series data so I couldn’t check it out.

New data! Yea! Then one day while geeking out on all the raw data Zillow publishes (which I originally learned about via CalculatedRisk), I noticed that Zillow publishes a dataset that conceptually seemed the same as the one promoted by Weiss Analytics. With the discovery of this “secret” dataset, I felt like the Indiana Jones of real estate data geeks. 🙂

Percent of Homes Increasing in Value

Like Weiss Analytics, Zillow estimates the value of pretty much every home in a market. Zillow calls their individual home value estimates “Zestimates.”

Zillow’s “Increasing Values Percentage” dataset shows the percentage of homes in a given region with Zestimates that have increased from a year earlier.

If you follow Real Estate Decoded, you know I’ve spent a lot of time detailing the accuracy/inaccuracy of individual home Zestimates, such as here and here.

Ballpark. The “Increasing Values (%)” dataset will have a bunch of accuracy issues as well, just like Zestimates or any other home value estimates. But like Zestimates, “Increasing Value (%)” gives you a nice ballpark estimate of what’s really happening on the ground.

The Mechanics of Home Price Increases

Looking at the graph, it seems that when the percentage of homes with increasing values is high (above ~70%) or is increasing fast (up several percentage points in a month), home prices tend to increase – or continue to increase – in the future.

The opposite is true for decreasing home values. When the percentage of homes with increasing values is low (less than ~30%) or is falling fast, home prices tend to fall.

Can we use this to help predict future home price trends?

New Tool?

Economists follow a bunch of things related to supply and demand but the only thing most people want to know is the last thing that changes, home prices.

I think the “Percent of Homes Increasing in Value” will sometimes show you that home prices are strengthening or weakening before home prices actually change.

I just don’t know yet when it works and when it doesn’t.

Takeaway. The “Percent of Homes Increasing in Value” isn’t a killer metric but it has potential. I would say, for example, that changes in the number of home sales or the supply of homes for sale are better leading indicators of future home prices. This “new” metric, however, provides additional, helpful information. It would certainly make me more confident in my forecast, if it moved in the same direction as the sales story and the supply story.

Next step. I’m going to follow “Percent of Homes Increasing in Value” for a while to see if it lets me get a better feel for where the Case-Shiller Home Price Index is headed.

For my detailed discussion of the usefulness of the “Percent of Homes Increasing in Value,” watch the video above.

Feel free to leave a comment. I’m interested in your opinion on this, particularly if you have an idea why in several cities the metric went from going steeply down in 2014 to steeply up in 2015.

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Portland, Seattle & San Francisco are HOT

(I just updated the Case-Shiller graphs.)

Annual Home Price Appreciation
Jan 2015 – Jan 2016

Most Appreciation (within the 20 metros)

  1. Portland = +11.8%
  2. Seattle = +10.7%
  3. San Francisco = +10.5%

It looks like San Francisco has lost some of its mojo since November. The turmoil in tech startup valuations is trickling down. On the other hand, Seattle home prices haven’t lost any upward momentum (yet?).

Case-Shiller Hot

Least Appreciation (within the 20 metros)

  1. Chicago = +2.1%
  2. Washington DC = +2.2%
  3. New York = +2.8%

In addition, New York’s ultra luxury condo market seems wobbly.

Case-Shiller Not

Data Table – 20 Cities

Case-Shiller Table

Full S&P Case-Shiller press release.

San Francisco Home Prices Losing Momentum?

(I just updated the Case-Shiller graphs.)

Annual Home Appreciation
Dec 2014 – Dec 2015

Most Appreciation (within the 20 cities)

  1. Portland = +11.4%
  2. San Francisco = +10.3%
  3. Denver = +10.2%

December is a slow month.

However, if you see a city that is usually down in December that is up this December, that would be very bullish for home prices in 2016 but I haven’t notice any. Let me know in a comment if you do.

I’m anxiously waiting for the high season to begin so I can see which cities have changing trends.

San Francisco Story

San Francisco

San Francisco actually fell slightly from November to December but that’s not unusual for that time of year in San Francisco.

One of the most interesting stories of 2016 will be San Francisco. The tech bubble is deflating, the Chinese economy isn’t as strong as it was so Chinese citizens may buy fewer homes in San Francisco. All the surprises for San Francisco have been on the downside the past several months.

I expect San Francisco home prices will level off sometime this year. However, the time lags between cause and effect in real estate are huge so we may not see any impact for a while.

Once we have March numbers, we’ll have a good idea of the strength of the San Francisco housing market is. Is the bad tech news having an impact yet or is inertia still driving the market? Will other unexpected economic events move the market?

But with Case-Shiller’s own time lags, we won’t have those March numbers until May.

Data Table – 20 Cities

Case-Shiller Chart

Full S&P Case-Shiller press release (pdf).

ADDED LATER: Is San Francisco in a housing bubble?

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Tim Geithner’s Class on Financial Crisis – Housing

“Housing was terrible.” So begins Tim Geithner’s lecture on housing in his new Coursera course, “The Global Financial Crisis.”

Tim Geithner, U.S. Treasury Secretary from 2009 to 2012, explains what the government did to stop the financial panic of 2008 from becoming another Great Depression. (Geithner is quite fond of making comparisons to the Great Depression in the course.)

The two modules in the free Coursera course that Geithner teaches are sort of a play-by-play of how the government saved the world.

I have a new respect of Geithner after watching his lectures. Because he was head of the New York Fed for five years before he became Secretary of Treasury, I had him pegged as a Wall Street guy. I figured his motto must be “Save Wall Street, Save the World.” (My apologizes to the cheerleader in “Heroes”.)

Although, to be fair, Geithner was probably less invested in the success of Wall Street than his immediate predecessor, Henry Paulson, who was CEO of Goldman Sachs for several years before taking over as the head of the U.S. Department of Treasury.

Geithner Policy Failures v2

Failures Before the Crisis

In the Coursera course, Geithner briefly mentions the origins of the crisis.

Geither’s top cause, “Home equity was too thin.”

Current Failures

Geithner tough questionsIn another section, Geithner asks, “How do we balance the imperatives of mortgage accessibility and market stability?”

I’ll translate; “Low down payments make homeownership more affordable but they also make home prices more unstable. How do you handle a policy that increases homeownership slightly but also increases home price instability greatly for all current homeowners?”

He goes on to say on one of his slides, “Should we have mandatory down payment requirements? And how high should those down payments be?”

It seems to me that Geithner thinks we should have mandatory minimum mortgage down payment requirements but he chickens out and doesn’t say so directly.

I wonder what Geithner’s reaction would be to the return of the 3.5% down payment mortgage.

Digression: Minimum Down Payments

Canada has a minimum 5% down payment and that’s one reason why Canadian home prices didn’t crash when ours did.

A 5% minimum down payment in the U.S. would have muted the home price increases during the boom and it would have also muted the number of foreclosures and the home price decreases during the bust. A nice, simple, double-edge price stabilizer.

But that part about “muting home price increases” would be very unpopular in the U.S. It seems the U.S. is in favor of all policies that increase home prices, although they’re often pitched as altruistic, affordable housing policies.

Personally, I’ve never been able to wrap my head around the idea that policies that increase home prices are “affordable housing” policies. But everyone from the banks to affordable housing advocates seem to think that extremely low down payments are good. Meanwhile, Americans spend more and more of their incomes on housing. More expensive homes seem less affordable to me.

Housing Finance Still Broken

GeitnerIn his section on “Unfinished Business,” Geithner’s second item has this unusually blunt statement, “The housing finance system is still broken.”

Moral Hazard of Bailing Out Everyone

I was surprised how self-aware Geithner was about the “moral hazard” of bailing out the irresponsible people who were responsible for creating the financial crisis. Moral hazard seems to be a big concern for Geithner.

His point of view is that in normal times you would let an irresponsible company fail but during a panic you just can’t because each failure ratchets up the panic making controlling the panic even more unlikely and expensive.

Geithner seemed fully aware of the unfairness of bailing out those who created the crisis, unfortunately, that was the only way he thought he could stop the panic. And it probably didn’t hurt that he has was also bailing out the industry and the people he had known for years, Wall Street.

“It cannot be morally responsible to allow depression in the hopes of deterring future risk-taking.”

I’ll translate; “It’s wrong to punish the irresponsible jerks who caused the crisis if that causes the economy to go into a depression.”

“What seems unjust is just.”

Bailing Out Everyone… except Homeowners

Another surprise to me was Geithner’s regret over not being able to save homeowners in the same way they saved finance and Wall Street.

Geithner seemed pretty proud of his accomplishments in the crisis, except for housing.

Housing Policy FailureHe lists proposed housing policies that would have helped homeowners but which didn’t get implemented. He complains that Congress didn’t create the programs or give the agencies the powers they needed and, by the way, debt forgiveness for homeowners would have been very expensive.

His top non-approved proposal was to treat mortgage debt like other debt in bankruptcy courts which would allow federal judges to reduce the mortgage debt during bankruptcy, AKA “cramdowns.” The fact that twice they couldn’t pass such a difficult-to-abuse policy – you have to be going through bankruptcy, after all – makes me sympathetic to Geithner’s complaint.

Foreclosures are what killed home prices. Anything that lowered the number of foreclosures would have lowered the downward pressure on home prices. Allowing mortgage debt reduction in bankruptcy wouldn’t have lowered the number of foreclosures a ton, there weren’t a ton of bankruptcies, but it would have had some impact.

Punish The Little Guy

Geitner ruleMy pet peeve about the housing bust was that the banks and Fannie and Freddie would foreclose on people and sell their homes for an amount many of those foreclosed homeowners would have been willing and able to pay for the house! But lenders preferred to foreclose instead of renegotiate the mortgage debt.

So millions of additional foreclosures hit the market further tanking home prices. In addition, those foreclosed upon homeowners were put in a penalty box and couldn’t get new mortgages for years which lowered demand.

I assume the bank and government thinking at the time was, “If we bail out one homeowner, they’ll all demand to get bailed out and that would be too expensive.”

Unlike with the financial institutions, it seems the goal here was to punish homeowners even if it made the banks worse off by increasing the number of foreclosures and thereby lowering home prices even more.

It seemed, for whatever reason, that what I’ll call the Geithner Rule, ‘Ya gotta bail out everybody to save the world’ wasn’t applied much in housing.

And remember, many of the mortgages the banks foreclosed on were guaranteed. The foreclosing banks didn’t absorb the majority of those losses.

Too bad there weren’t guarantee programs for homeowners as well as for bankers.

Residuals

I have a lot of new respect for Tim Geithner after watching his two modules on the Coursera course, “The Global Financial Crisis.”

However, he worked for the Fed before becoming Treasury Secretary so, unsurprisingly, Geithner doesn’t mention as a cause of the real estate boom that the Fed kept interest rates too low, too long in 2002-2004. Those low adjustable rate mortgage rates enabled a lot more money to chase homes and home prices took off.

Today, it’s easy to see why many Americans feel the system is unfair. All the bad actors on Wall Street got bailed out but responsible home buyers whose only mistake was buying in 2005, 2006, 2007 or 2008 didn’t.

Millions of Americans are still underwater on their homes after making monthly payments for 10 years! That’s gotta hurt.

It could even make people have bad feelings toward the political establishment of both political parties.

Conclusion

“The housing finance system is still broken.”

– Timothy Geithner

Here’s Geithner’s short “Conclusion” lecture.

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Note: All the quotes in the graphics were take from the transcript of the Coursera course, “The Global Financial Crisis,” however, I created the headings above the quotes. The other graphics are taken directly from the course slides.

My Newest Article in BiggerPockets.com

For the uber real estate geeks out there, I got an article published this week in BiggerPockets, the #1 website for real estate investors.

The article is, “The Lesser Known Home Price Index That’ll Give You Unique Market Insight”.

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U.S. Attitudes Toward Strategic Defaulters vs. Non-Defaulters

In the long post last week, I delved into those forgotten people who bought homes at the peak of the real estate market in 2005, 2006, 2007 or 2008 in bubble cities, decided NOT to do strategic defaults back then, and today are still underwater.

(BTW, I added a video to the original post. Was having problems with my video editing software.)

From that post;

A study done in 2009 asked the general public this question, “Do you think that it is morally wrong to walk away from a house when one can afford to pay the monthly mortgage?” Over 80% said “Yes.”

I think American attitudes towards walking away from your mortgage changed a ton because of the real estate bust. My theory is that before the real estate bust, getting foreclosed on was considered to be shameful but after the real estate bust getting foreclosed on is only considered to be unfortunate.

Twitter Poll

To get a ballpark idea of the change in American attitudes toward walking away from your mortgage, I ran a poll on Twitter. Yeah, yeah, I know this isn’t scientific at all but I wanted a quick way to get a general idea how people feel about strategic defaulting in 2016.

Twitter Poll - Strategic Default Attitudes

My personal attitude toward the non-defaulters is bittersweet – I think they are heroes for sticking to their ethics and not defaulting despite being scarily underwater, but I’m sad that sticking to their ethics hurt so many of them financially. I admire Don Quixote, too.

Results

In 2009 over 80% said it was morally wrong to walk away.

My quick 2016 Twitter poll shows roughly the opposite attitude today.

Heroes. Only 19% said they were “Heroes.” That sounds like only 19% gave the non-defaulters 100% support for their decisions to not walk away.

Naive. 24% said they were “Naive.” That sounds like they thought the non-defaulters were foolish for not walking away.

Both heroes & naive. 27% said they were both “Heroes” and “Naive.” This is probably closer to my confused feelings about all this. I greatly admire their sense of personal responsibility and morality, but some may have been naive to believe that chivalry still lived.

Neither / Other. The most popular answer at 30% was “Neither / Other.” This is probably the best answer. They’re saying those people who chose not to walk away were neither “Heroes” nor “Naive” nor a combination of the two. I think they’re mostly saying the non-defaulters were just people doing the best they could in a bad situation with the facts they had at the time.

In 2009, is was considered morally wrong to walk away from your underwater mortgage. Today, you’re likely to be considered naive if you don’t.

What do you think?

  • Did the real estate boom and bust change American attitudes towards personal responsibility?
  • Who was right, the strategic defaulters or the non-defaulters.

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