Boston Prices Up, Barely, Against Negative Backdrop

The closely watched S&P/Case-Shiller Home Price Index reported today that home prices continued to decline nationwide in April.

A few bright spots were noted, however, including a small increase in existing single-family prices for the Boston metro area. In April, they were up 0.1% over March, the first such increase in nine months. For the year, though, they fell 6.4%.

The Boston metro area as surveyed by S&P/Case-Shiller (and by other major indices) includes five counties in eastern Massachusetts and two in southern New Hampshire.

The context for today's report is examined in The New York Times.

An Affordability Window Opens

This graphic was published in The New York Times on June 14, 2008. It shows consumer prices rising in May as a result of surging food and fuel prices. Click image to enlarge. Click here to read the full story.

In the last two months we've seen a welcome development. Pending sales in the Boston metro area have shot up against the same period a year ago. For single-family homes the increase has been about 11%, and for condos about 6%. These numbers are from MLS.

That means more people have made offers, and have had their offers accepted, than at this time last year. It's no puzzle why this has happened, nor is it unexpected. Home prices have finally fallen far enough to become affordable for many buyers -- at today's low interest rates

That's the good news; now the bad. Interest rates are already heading up in response to oil-induced inflationary pressures (see graphic and related story). So, an obvious question arises: will this window of opportunity stay open? Let's look at some numbers.

If interest rates were to rise half a point, say from 6.75% to 7.25%, home prices would have to fall a further 5% to compensate, that is, for a buyer's mortgage payments to stay the same.

According to the S&P/Case-Shiller Index (see June 7th post), Boston-area home prices have declined at an annual rate in the low single digits for the last 8 months. In the year ending March 2008, the latest report, they fell 5.6%. Will rising interest rates beat falling home prices? Stay tuned.

Here are two timely articles addressing the issue of affordability, how economists look at it, and how it affects home-buying decisions. If you're on the fence, you may find them helpful. One appeared recently in MarketWatch, the other in The Wall Street Journal.

Finally, here's a further New York Times story on how rising oil prices are working their way through the national economy.

Surprise Increase in Pending Home Sales

The Associated Press, June 10, 2008. Pending home sales unexpectedly rose in April to the highest reading since October, an industry group said Monday, but experts said the large proportion of distressed property sales would continue to weigh down prices.

The National Association of Realtors seasonally adjusted index of pending sales for existing homes rose to 88.2, from a March reading of 83.0, the lowest since the index was started in 2001. It was still 13 percent below April 2007’s reading of 101.5.

NAR's Pending Home Sales Index is a forward-looking, or leading, indicator. It contrasts with the S&P/Case-Shiller Home Price Index, a trailing indicator (see the first June 7th post, below). The stark difference in recent reports by the two means only one thing: an affordability threshold has been crossed, and buyers are flooding back into the market.

In fact, pending sales have increased notably here in the Boston area, despite a small drop reported by the NAR index for the Northeast as a whole. Pending sales were up significantly here in April and May over previous months, and also over the same months a year ago.

For the full story, click on the AP by-line, above. For a more detailed analysis, read the NAR announcement.

As Home Prices Drop, a Committed Renter Buys

Antique house across the street from the storied Bullet Hole House in historic Concord, Mass. Photo by Ron Cohen. Click to enlarge.

As an antidote to all the gloom in the news these days, I recommend this delightful piece by David Leonhardt of The New York Times. He went from being an outspoken opponent of buying a home during the bubble, to now relenting and buying one himself. Here he explains why, and offers some guidance. If you're debating whether to buy yourself, I'm sure you'll find this helpful.

Housing Prices Fall 14.1%, in a Continuing Slump

This graphic was published in The New York Times on May 26, 2008. It shows the rate of change in the S&P/Case-Shiller Home Price Index for the Boston metro area. Click to enlarge.

The accompanying Times story is excerpted below. Click the dateline for the full story.

The New York Times, May 26, 2008. America’s home-buying season, when for-sale signs sprout like dandelions, is shaping up to be even worse than expected this year, with prices falling, sales slowing and few signs of a turnaround emerging.America’s home-buying season, when for-sale signs sprout like dandelions, is shaping up to be even worse than expected this year, with prices falling, sales slowing and few signs of a turnaround emerging.

Two reports released Tuesday captured the bleak picture. One showed that home prices nationally fell 14.1 percent in March from a year earlier. The other showed sales of new homes, although up slightly in April, remained mired near their lowest levels since 1991.

The S&P/Case-Shiller March report was a big story when it was released on May 25, because of the depth and breadth of the price declines it showed. It certainly threw into doubt the optimistic projections of the National Association of Realtors, among others, that housing would begin to improve in the second half of 2008.

The S&P/Case-Shiller Index is based on a three-month moving average, so the March report encompasses January, February and March -- in effect, the 1st quarter of 2008. For that period, home prices declined nationally by 14.6% versus the same period a year ago. The Boston region continued its recent series of single-digit declines, slipping just 5.6% over a year ago.

The closely watched S&P/Case-Shiller Index compares the sale price of a house to the price it sold for previously, thereby avoiding distortions due to variations in house size, quality and appeal, as well as to shifts in the local sales mix.

Further insight on the impact of these numbers can be gained from the comments of Floyd Norris, business columnist for The New York Times.

The S&P press release, itself, is also of interest. Be sure to scroll down to see the city-by-city data.