Case-Shiller Index Reported November 2011

The latest Case-Shiller Index was published on Tuesday, November 29, 2011. As always, the index reports on data 60 days in arrears. Therefore, the index reports Metro Atlanta home values for September 2011. So what does the latest index show and what does that mean for home values in metro Atlanta?

Before we provide the answer, we want to make two caveats. First, the Case-Shiller index of home values is very different from average sale prices or median homes prices which only reflect what was actually sold in the market. If lower priced homes are selling more, then the average sales price will show a lower value than what market value may be for higher priced properties. According to SmartNumbers, almost 50% of 2011 closed sales are under $100,000 and the normal distribution would be in the 10-15% range. That skews the average sales price and median price lower. The median price is simply the home sales price in the middle of the properties selected. The Case-Shiller Index reports on repeat properties sold and other factors which are generally better indicators of home values. Second, this index reflects the average home values for all of Metro Atlanta. Remember, people do not buy houses in America or even in metro Atlanta. They buy a specific property on a street in a local community. Real estate is local and every market is different. There are some local communities that have held their values reasonably well and others that may continue to decline. Your local Prudential Georgia Realty agent can help you understand the specific metrics in your local market. However, the Case-Shiller Index is a good general indication on what is happening in our market.

Now for the news…. The July index shows a 5.93% decrease in homes values from August 2011 which is a surprisingly large drop.  In fact, this is the largest month-to-month drop in recent years.  The Case-Shiller Index is a “rolling average” which means that trailing results can slightly change the results for the past few months.  The current index reflects values similar to home values in May of 1999.   But remember, our values are not down as much as many other metro areas.  In a recent report we published, there are 13 other areas with larger drops in value than Metro Atlanta.  We have several more years of foreclosures and short sales to process before we begin to show sustained increases in home values. The September index is 95.99 which is 5.93% down from last month and 9.78% down from September of 2010. Click on the link below to open the Excel spreadsheet that shows the details of the latest index.

Case-Shiller-Index-Atlanta-September-2011-Index-Reported-November-2011

The peak of our market was July of 2007 according to the Case-Shiller index. Since July of 2007, our homes values have slipped 29.66%.  The December 2010 results were the previous bottom at 26.68% from the peak – so we have fallen 2.98% past those levels.  With the winter months ahead, we would expect further drops.  If you average the Case Shiller Index for the past 12 months, we are down 25.4% from the peak. We believe it is more effective to use the ”average of the past 12 months” or “trailing 12 months” as an indicator instead of reacting to a specific month. Click to view the graph of the latest Case-Shiller results from 2010 and 2011.

If you look back further at home values, you can see that we had the bubble in homes values but are actually below the normal trend line. Of course, this is caused by an oversupply of short sales and foreclosures. As we work through this inventory and return to a more normal mix of resales and new homes, home values will rise.

The big factors to watch will be the pace of short sales and foreclosures entering the market and mortgage rates. Your local Prudential Georgia Realty agent can show you the specific trends in your local area for foreclosures, short sales and notices of default. Recently, we have seen mortgage rates dip back to historic lows again. The Fed has announced that interest rates will be frozen through the middle of 2013. They have also implemented Operation Twist which is a program intended to keep 30-year rates low. But mortgage rates are impacted by more factors than just interest rates. There are major legislative issues and other economic factors that could cause mortgage rates to rise. For example, the proposed legislation for QRM (Qualified Residential Mortgages) will require mortgage companies to hold back 5% in capital reserves for every loan. That is expected to be funded by higher mortgage rates. Analysts also predict the eventual demise of more exotic loan types like ARMs and interest-only loans. We will more likely see plain vanilla mortgages of 10, 20 and 30 years with a 20% down payment. This is all part of the financial reform legislation. Right now, there is an incredible window of opportunity to buy the home of your dreams and set a future mortgage rate that we will not likely see again in our lifetimes.

Remember, you will not know the bottom of the market until it is already passed. We believe that we are seeing the bottom of the market for Metro Atlanta now. Future demand for our housing is strong. A report from the Atlanta Regional Commission forecasts 3 million new residents in the next 30 years. Our conclusion is that we are seeing the bottom of homes values for Metro Atlanta but expect a slow recovery. We expect to see annual home values slowly increase over time with a few bumps along the way. In 2013 or 2014, we expect to see a seller’s market return with higher than normal appreciation for a few years. Contact us to learn more about future predictions and how that impacts your decisions.

If you look at the average annual Case-Shiller index for each year, here is how homes purchased in recent years would compare to the current index:

Homes Bought in 2000 – Loss of 7.01%
Homes Bought in 2001 – Loss of 11.95%
Homes Bought in 2002 – Loss of 15.21%
Homes Bought in 2003 – Loss of 17.88%
Homes Bought in 2004 – Loss of 20.68%
Homes Bought in 2005 – Loss of 24.48%
Homes Bought in 2006 – Loss of 27.93%
Homes Bought in 2007 – Loss of 28.39%
Homes Bought in 2008 – Loss of 21.73%
Homes Bought in 2009 – Loss of 11.45%
Homes Bought in 2010 – Loss of 9.24%

Yes, we are slowly climbing our way out of this unprecedented housing crisis – but we are not there yet. So where will home values go from here? The key factors that will impact our home values include the following:

• Demand From Buyers (We expect demand to finish 2011 with over 75,000 homes purchased – a 25% increase from 2010.)
• Mortgage Rates/ Credit Availability (Average mortgage rates in the past 50 years were 8%. We expect to see historically low mortgage rates this fall and winter but expect to see rates rising during 2012 and 2013. In a few years, we expect to see rates 1-2% higher.)
• Supply/ Inventory Levels (We expect inventory to remain at slightly low levels with a heavy mix of short sales and foreclosures for the next two years.)
• Competition from Short Sales/ Foreclosures (We expect to see significant numbers of short sales & foreclosures for the next two years. We predict that short sales and foreclosures will be approximately 60% of the transactions in 2011. However, we do not expect a flood of foreclosures that drives the overall inventory too high. Banks are not likely to harm their own values.)

You and your agent should be carefully watching the trends for short sales and foreclosures. Yes, we will continue to see some ups and downs along the way, but home values will rise again. In a few years, short sales and foreclosures will return to normal levels. The new homes inventory will remain low. That means we will see an undersupply of homes for sale and values will begin to rise. In 5 or 10 years, many will look back and regret not buying their dream home when they had the chance! Check back for our next posts with the latest facts and insight that can make you money!