David Blitzer, Chairman of S&P index committee, stated that “The deceleration in home prices continues.” True. But would it have been more useful to point out that if the decline of the last 4 months continues, the year over year index will be 4.0% next month and negative with the reporting of December activity. The year over year price growth of 5.6% for the Case Shiller 20 city consists of 8 positive months which grew at 6.9% and the last 4 negative months which is why the index will turn negative so quickly.
These trends are illustrated in the following graph:
Source: Case Shiller
After the end of the house purchase credit in June of 2010 prices were negative. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012. Prices declined in June but the euphoria about price increases lead investors and buyers to pile in, creating the peak in March and April of 2013. Prices declined with the last strong month in March of 2014.
The two year “housing recovery" was a reaction to government action to stimulate the housing market and intensive lobbying to keep these subsidies. Income and job creation were weaker in 2012 than when prices took off. The stimulation actions were successful in the short run but they are not permanent. They are most effective in high priced markets which have far to fall.
The following Table illustrates the decline by city. To aid understanding these cities are combined into groups of cites that are similar but definitely not the same. The cities are with two exceptions grouped by the increase in price from the start of the bubble in June 1997 to the peak in June 2006.
Price Declines are much greater than would be seen in the year over year comparison because this analysis masks what is happening in the market. Prices in California are down With a 27 Percentage point drop in San Francisco. Los Angeles prices were lower than typical for California because higher house prices had already made this city less competitive so price growth dropped only 9 points. The resort markets, which were growing rapidly dropped to zero. Washington, New York and Boston price increases fell at double digit rates. The most rapid decline was in mid-priced mid- western cities. The stable cities declined but at half the 20 city 14 point decline.