The fear that home prices will continue to fall over the next several months appears to have gripped economists who insist that a “double dip” in home values is either inevitable or already in motion, despite recent signs of recovery in the general economy.
However, there is also evidence that prices for new homes—which generally aren’t included in the widely watched housing indices—are stabilizing. Some large production builders have had success raising their prices (see chart below), although it’s hard to gauge whether that trend is sustainable on a broader scale when so few new homes are currently being sold—only 290,000 units on an annualized basis through November, according to Census Bureau estimates.
Some economists have been predicting for months that the housing market wasn’t finished adjusting to the stark realities of weak buyer demand, a surfeit of unsold existing homes and an ongoing deluge of foreclosures. “We should expect house prices to continue to fall, with nationwide prices dropping another 15 to 20 percent to complete the process of deflating the bubble,” wrote Dean Baker, co-director of the Center for Economic and Policy Research, in the New York Times last August.
The latest release of the Standard & Poor’s/Case-Shiller Housing Index, in which all 20 markets tracked showed month-to-month and year-to-year price declines in October, confirmed for some economists a trend they have been dreading. That includes S&P’s David Blitzer, who uttered the words “double dip” in his comments on the index’s findings. “It’s pretty clear the housing market has already double dipped,”Columbia University economist Nouriel Roubini told CNBC after the Case-Shiller data came out. “And the rate of decline is stronger than in previous months.” Roubini was one of the first economists to foresee an implosion of the housing bubble.
Patrick Newport of IHS Global Insight observed that existing home prices in several metro markets had actually triple dipped during the recession. And a provocative and depressing blog on the website The Automatic Earth on Sunday quotes a number of economists—including one of the more bearish, Peter Schiff—to make its predictive argument that home values will need to drop another 20 percent because capital for mortgage lending will be scarce and mortgage defaults will continue to rise, putting more distressed homes back on the market at discounted prices.
In an interview with BUILDER on Tuesday, David Crowe, NAHB’s chief economist, conceded that all this talk about home prices double dipping “certainly concerns us. Opinion drives impressions, and if you get enough economists saying the same thing, people will believe them. And you have to reflect on the dismal performance of the [housing] indexes of late.”
Crowe remains convinced, though, that the declines in the indexes—“and Case-Shiller in particular”—are the result of the tail end of the expiration of the home buyer tax credit. “We’re finally seeing a full three months worth of results and the consequent softness in house prices.”
In addition, Crowe points out that there’s no index tracking new-home prices on a consistent basis, so it’s difficult to draw conclusions about those prices from what’s going on with existing home sales. (The Census Bureau’s latest data show the median price of a new home sold through November, $213,000, was off by 2.7% from the same period a year ago.)
Crowe says NAHB’s membership is currently in a “spotty period” when it comes to pricing their products. “Builders who have figured out the segment of their markets that is robust are doing okay—not great, but okay because no one is doing great right now.” Indeed, if one looks at pricing trends among the industry’s public production builders, a definite leveling-off pattern emerges for most.
Builder Average selling price, 2010
(% chg. from 2009)
D.R. Horton $206,100 (-3.4%)
Pulte $257,261 (-0.22%)*
Lennar $244.000 (-0.41%)*
NVR $295,700 (-1.6%)*
KB Home $208,100 (-0.26%)*
Hovnanian $280,715 (-1.1%)
Ryland Homes $241,500 (+0.11%)*
Beazer Homes $221,700 (-3.9%)
Meritage Homes $253,500 (+5.3%)*
Standard Pacific $344,000 (+14%)*
MDC Holdings $280,800 (-0.35%)*
Toll Brothers $565,769 (-4.4%)
M/I Homes $226,000 (+11.9%)*
*through nine months of its fiscal year
Source: SEC filings
Some companies have enjoyed decent year-to-year price gains at least through last fall, including Standard Pacific Homes, which attributed its price increases to “the delivery of more higher-priced homes within Southern California and the reduction of deliveries in Florida.”
M/I Homes noted that it had benefited from a significant recovery in its business in the Midwest, where through September 30 its sales were up by 38% and its average selling price up by 12%.
Crowe of NAHB believes that most builders remain optimistic about growth in jobs and income levels in 2011. If those kick in, “that will bring out demand.” What builders have to be wondering, though, is how much steeper they might need to bring down prices to encourage long-sidelined buyers to re-enter the market and consider the purchase of a new house.
John Caulfield is senior editor for BUILDER magazine.