For Home Prices, the “Second Derivative” Rolls Over Again…But ITB Holds

For Home Prices, the “Second Derivative” Rolls Over Again…But ITB Holds

Anecdotally, I’ve been hearing reports and thoughts that the US housing market, if not at a bottom yet, should be close to one.  While this may be true for certain markets, it doesn’t appear that a base is being formed, at least yet, across the board.

From the WSJ:

Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Prices have now fallen for 57 consecutive months, according to Zillow.

Since the home buying tax credits have expired, demand for homes has surprised – to the downside:

While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. “We expected December and January to be bad” as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow’s chief economist. But monthly declines for February and March were “really staggering,” he said. They indicate “a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it’s being completely overwhelmed by supply.”

Full article: Home Market Takes a Tumble (put the title into Google and click that link, if Murdoch’s fence stops you from reading the whole article via the link)

As our high school physics friendly headline teased, the second derivative has “double dipped” to the downside:

Home Value Change ChartSource: WSJ Online,

The good news for home bulls is that this is a trend guaranteed to end at some point!

My pessimistic historian side wonders if some US markets have seen permanent peaks.  My hometown of Sacramento comes to mind – a lovely place to live, but 42.4% of home owners are doing so underwater at the present time.  With the state government staring down the gun barrel of austerity for the foreseeable future, it’s hard to think of a catalyst (short of outright hyperinflation) that’d get things moving to the upside here…even in nominal (fiat) terms.

For those of you scoring at home, Las Vegas is still clocking in on top, with a dominant 71.6% of mortgage balances higher than the value of the property itself.   Was Vegas’ all-time peak cerca 2006?  Time will tell.

All real estate is local, so your market may be looking much friskier than the Capital of the People’s Republic right now.  Price expectations aside, as you know, I’ve got a serious beef with home ownership – and most of it has to do with the restriction of personal freedom that seems to inevitably come from it.

Anyway the shrewd investor could be well served to listen to our good friend and correspondent Dr. Evil, who recently remarked to me: “I’d rather own KB Home than a house right now” – implying that with so much bad news priced in, home building stocks will rock and roll once a bottom is actually but in.

Turning to my favorite home builder ETF, the iShares Dow Jones U.S. Construction (ITB), things are actually looking quite positive.  ITB continues to build a base, despite the bad news coming in.

ITB stock price chartSource:

When an asset holds up this admirably in the face of bad news – making higher lows to boot – it often indicates that a significant bottom is in place.  If that’s the case here with ITB, then it could really hum when a bit of “less bad” housing news hits the wires.