Why the housing market crisis isn t
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Why the Housing Market “Crisis” Isn’t. Dr. Stanley D. Longhofer October 2, 2007. Some Scary Housing “Facts”. New and existing home sales are “plummeting” while inventories are “through the roof” New home construction has “come to a standstill” Foreclosures are “skyrocketing”

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Why the housing market crisis isn t

Why the Housing Market “Crisis” Isn’t

Dr. Stanley D. Longhofer

October 2, 2007

Some scary housing facts
Some Scary Housing “Facts”

  • New and existing home sales are “plummeting” while inventories are “through the roof”

  • New home construction has “come to a standstill”

  • Foreclosures are “skyrocketing”

  • Home prices are “in a freefall”

Why do we care
Why Do We Care?

  • Macroeconomic impact of housing

  • Determine what is happening to my personal housing investment

    • Should I buy or sell?

    • What is happening to the value of my house?

      Remember: No one owns the average U.S. home

Home sales are down
Home Sales are Down

Year-over-year Percentage Change

Existing Home Sales

NewHome Sales

Sources: NAR; U.S. Census Bureau

Inventories are up as well
Inventories Are Up As Well

Months Supply (SA)

Existing Homes


Sources: NAR; U.S. Census Bureau

Home sales the real story
Home Sales: The Real Story

  • New and existing home sales have fallen and this is a nationwide phenomenon

    • The rise in inventories is largely due to the decline in sales, not an up-tick in new listings

  • Question: Why are sales falling while the overall economy is still fairly strong?

    • Real GDP growth was up 3.4% in 2007Q2

    • Unemployment was 4.6% in August

What about construction
What about Construction?

  • New home construction has fallen sharply as well, no matter how you measure it

    • Building permits

    • Housing starts

    • Completions

  • This is of more concern, because it represents real economic activity, not simply the transfer of existing assets

Are foreclosures skyrocketing
Are Foreclosures Skyrocketing?

  • Ignore foreclosure reports that use data from RealtyTrac

    • The areas covered by these reports change from month to month, making comparisons over time meaningless

  • The “good” foreclosure and delinquency data are compiled by the Mortgage Bankers Association of America

Severely delinquent loans
Severely Delinquent Loans

Percent of Loans Serviced

14% of all loans

Subprime Loans

2% of all loans

3% of all loans

All Loans

Prime Loans

Source: MBAA

The foreclosure debacle
The Foreclosure Debacle?

  • If it were not for two problem areas, foreclosures nationwide would have fallen in the 2nd quarter

    • A regional recession in the rust belt

    • Four states with a high percentage of investor loans: Arizona, California, Florida, and Nevada

Are home prices falling
Are Home Prices Falling?

  • It depends on whom you ask?

    • NAR median sale price

    • OFHEO house price index

    • S&P / Case-Shiller house price index

U s house price appreciation
U.S. House Price Appreciation

Year-over-year Percentage Change

NAR Median Price

S&P / Case-Shiller HPI


Sources: NAR; S&P; OFHEO

Comparing house price indices
Comparing House Price Indices

  • The drop in the NAR median sale price reflects fewer sales in high-priced coastal markets, not a decline in the value of any given house

  • The S&P index is constructed so that it emphasizes changes in high-end houses

    • Centered on large, high-priced markets

    • Includes very-high priced houses

    • Value-weighted

Ofheo hpi by s p coverage
OFHEO HPI by S&P Coverage

Quarter-over-Quarter Percentage Change

States with Full Coverage

States with Partial Coverage

States with No Coverage

Source: WSU Center for Real Estate, using data fromOFHEO and U.S. Census Bureau

Comparing house price indices1
Comparing House Price Indices

  • Differences between the OFHEO and S&P indices gives us insight into what is really happening to house prices

    • Appreciation in most markets nationwide has slowed, but is still positive

    • High-end homes in high-priced markets are bearing the brunt of the downturn

    • Even in these markets, prices are well above where they were just three years ago

Comparing house price indices2
Comparing House Price Indices

Index: 2000Q1 = 100



Sources: S&P; OFHEO

A housing market crisis
A Housing Market Crisis?

  • New and existing home sales have fallen, but it is hardly the crash being portrayed in the media

    • A self-fulfilling prophecy?

  • Foreclosure problems are fairly isolated

  • House price appreciation has slowed, but prices continue to rise most markets across the U.S.

A housing market crisis1
A Housing Market Crisis?

  • From a macroeconomic perspective, there could hardly be a better time for a housing slowdown

    • Interest rates are low

    • Employment is growing, albeit slowly

    • GDP growth is solid

  • Housing market statistics typically reflect what is going on in the overall economy, not the other way around

A housing market crisis2
A Housing Market Crisis?

  • From a personal perspective, you should simply ignore what you hear about the housing market in the national media

    • Focus on what is happening in your city or, even better, your neighborhood

Wichita state university center for real estate

Wichita State University Center for Real Estate

Building a Vision for Real Estate in Kansas