Recent Posts
- Miami Home Price Index Hits Resistance
- Friday Fountain Photo
- Miami Case-Shiller Rising, National Case-Shiller Fading
- Beware Local Papers Hyping Homeownership
- Venetian Pool Opens for 2014 Season in Coral Gables
Recent Comments
- Miami Has Seasons Too on
- Miami Has Seasons Too on
- Giant Pink Snails Invade Coral Gables on
- Giant Pink Snails Invade Coral Gables on
- Giant Pink Snails Invade Coral Gables on
Archives
- September 2019
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- July 2013
- June 2013
- April 2013
- February 2013
- January 2013
- December 2012
- November 2012
- September 2012
- August 2012
- July 2012
- June 2012
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- November 2011
- October 2011
- September 2011
- August 2011
- July 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- September 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- March 2009
- February 2009
- October 2008
- September 2008
- August 2008
- July 2008
- June 2008
Categories
- Financial Responsibility
- Fountains
- Miami and Coral Gables Living
- Properties in Focus
- Real Estate Market Data
- Real Estate News
- Uncategorized
Meta
Archive for September, 2012
Case-Shiller Index for Miami Rises Again
The latest reading of the Case-Shiller Home Price Index for the Miami metro area scored a seventh consecutive monthly gain, sparking optimism that housing prices in Miami may have finally hit bottom.
The trend is indeed impressively longer than in other short periods of improvement since the crash, although prices have not clearly escaped the sideways channel established several years ago when property values began to bounce along a bottom.
The latest improvement looks fairly promising, though still inconclusive, on the long-term chart as well.
One significant danger is that prices may simply have been goosed by dramatically falling interest rates. According to Freddie MAC, the rate on a 30-year mortgage plummeted from 4.55% in July 2011 to about 3.9% by January 2012, and then from 3.9% to 3.55% between April and July 2012.
Is the 7-month string of gains in the Case-Shiller index proof that housing has bottomed? Or is it just an artifact of the latest round of Federal Reserve interest-rate manipulation? The question is important, because the Federal Reserve’s low-rate policy in the early 2000s played a big part in creating the housing bubble, and those who bought in that low-rate, rising-price environment came to regret it. When the Fed raised rates, the jig was up. As Warren Buffett likes to say, when the tide goes out, you find out who’s been swimming naked.
So it’s worth reading optimistic news reports with a jaded eye. For example, the Miami Herald yesterday reported:
[I]f South Florida home values continue rising at their current pace, it will be 2017 before they return to peaks hit in 2006, according to the latest results from the Case-Shiller real estate index.
This is a dangerous assumption based on a flawed analysis. As the same article points out, prices are still down 47% from their high. To recover that loss in 5 years would require greater than 8% compounded annual gains. That’s a much greater rate of appreciation than prevailed before the bubble, so the Herald article is basically talking about a new bubble — an echo bubble. That’s hard to imagine. Will banks abandon lending standards again? Will incomes rise furiously? Will interest rates fall much further, considering that the Fed is already “all in” since announcing “QE infinity”?
It’s not even clear where the Herald gets the idea that the “current pace” of gains is greater than 8% annually. Year-over-year, from June 2011 to June 2012, the Case-Shiller index gained 4.4%. At that rate, it would take another 9 years to get back to the old high. And that assumes the recent trend is sustained for 9 years. Perhaps the Herald chose some shorter, sharper period of recent gains (e.g., month to month) and projected that into the future. That is an unreliable methodology.
On September 4, 2008, even before the fall of Lehman Brothers, the advice here was that “prices in Miami will fall 30% to 50% over a period of three to four years, and not return to their old highs until more than a decade has passed.” House Price Index Update — New York and Miami (Sept. 4, 2008). Looks like it will indeed take more than a decade to get back to the old highs.
If you find a good opportunity and you plan on living in a home for a long time, then buying may make sense for you. Just beware irrational exuberance.
Thomas K. Landry Call Tom: 305-448-8728 tklandry@landryrealty.com
Categories
- Lorem ipsum dolor sit amet
- Aenean sit amet diam
- Etiam mattis bibendum purus
- Etiam eget mi mollis risus
- Integer vehicula lectus