Opinions and insights from real estate broker Rick Bosl

For the second month in a row, 18 of the 20 Case-Shiller real estate markets posted higher home values.  It’s the 6th consecutive strong showing for the benchmark private-sector housing index.

Combined with falling home supplies and rising sales figures, this month’s Case-Shiller Index suggests that housing may have bottomed sometime earlier this year.

It’s cause for optimism.

Even Case-Shiller respresentatives seem excited. In its press release, the publishers singled out the index’s winning streak, commenting on the recent “stabilization in national real estate values”.

But, in that statement, we see the Case-Shiller Index’s biggest flaw.  The index ipurports itself to be a national real estate metric but, in reality, there is no such thing as a national real estate market.

All real estate is local.

The Case-Shiller Index reports home values for 20 U.S. cities.  Each of those cities, however, is comprised of smaller neighborhoods, each with its own character, desirability, and price points.  Case-Shiller attempts to lump it all together — an impossibility.

As an example, New York City posted a nearly 1 percent increase in July but that figure is just a city summary.  The actual market in three distinct neighborhoods — Upper East Side, Chelsea, and Flatbush — vary tremendously.  Not to mention Long Island, too.

Flaws aside, though, Case-Shiller is still important.  It helps to identify broader trends in housing and housing may hold the key to our economic future.

With July’s Case-Shiller Index, we see that the housing market’s recovery is being sustained.

Posted by Rick Bosl on September 30, 2009 | Tags: Case-Shiller

For the second consecutive month, the number of homes under contract to sell increased — further evidence that housing markets may have already bottomed.

As reported by an industry trade association, the Pending Home Sales Index rose by 3-plus percent last month.

A “pending” home is one that’s under contract but has yet to close.  This is one reason why the Pending Home Sales Index is an imperfect statistic.

Just because a home is under contract doesn’t mean it will actually sell.  A lot can go wrong between the date of agreement and the date of closing.  Deals fall apart all the time.  But, when the number of pending contracts rises, we can infer that buy-side demand for homes is strong.

It’s likely that the number of homes under contract is being influenced by a combination of low mortgage rates, relatively inexpensive homes, and various tax credits for certain homebuyers.  Overall, it’s spurring demand and that’s part of what’s captured by the Pending Home Sales Index.

So long as the demand for homes outpaces its supply, home prices are expected to rise.

There’s a mixed message in February’s Housing Starts data and it may be a good sign for home sellers in the near-term.

As reported by the government, new home construction rose by 22 percent last month.  The press is running with the headline number, calling it evidence of a market bottom.

A more thorough inspection, however, reveals a different story. 

The 22 percent figure applies to all homes built — including apartment building units.  Isolating residential units, February’s housing starts rose by just 1 percent.  Furthermore, the data’s margin of error is 11 percent. 

Statistically, we can’t know if residential housing starts really rose last month, or if it fell instead.  What we do know, though, is that the number of building permit requests rose.

Permits to build single-family homes were up 11 percent in February nationwide.

To home sellers, the rise in building permits may confirm that a housing market turnaround is already underway.  Builders wouldn’t be putting new inventory on the market, after all, without being sure of their ability to sell it 9 months hence.

The headline figure of 22 percent is attractive, but it’s not completely honest.  It’s not the number of housing starts that matter so much right now as the number of housing permits.   A rise in permits signals that homebuilders — a group that’s lost a lot of money in the last 2 years — think the worst of housing is already over.

(Image courtesy: The Wall Street Journal Online)