In early 2006, according to the Case Shiller real estate index, we reached an all-time high on housing prices. Since that time, there have been many discussions on the health and rebound of the housing market. The market low was 34% down in March of 2012. Currently, housing prices are about 30% lower than the peak of 2006. Are these statistics telling the whole story? We think not.
While we have had a mild recovery from the bottom, we are still quite far from a robust housing market. There has been some rebound in prices and volume of sales, but much of it is coming from the places that were hurt the worst during the housing crash: Arizona, Florida, Nevada and California. According to Case Shiller, prices are up over 10.9% year on year in prices nationwide. However the troubled states are up over 20% in prices. If this data seems somewhat skewed, it’s because it is. If you think about the historically low interest rates, you would expect a much more robust housing market than what the statistics show. These big increases are coming from such low levels that percentages mistakenly make the data look better than it actually is.
We still have a long way to go to get back to a reasonably robust housing market. We reiterate that demographics are not favoring housing demand. It is time to be cautious about this sector, especially if the 10 year treasury continues to be moved upward in yield. Most 30 year mortgages are based on that rate. We do believe that housing prices are improving, but we are not in a booming housing market by any measure.