S&P has updated its pessimistic outlook for the housing market this year to reflect the recent, expectations-beating data on new and pending home sales — and remains unimpressed.
From the report:
Going forward, we expect the December S&P/Case-Shiller home price index to also show a modest decrease. As a matter of fact, the housing futures suggest an additional 4.2% decline in home prices through late 2011, which is in line with our overall expectation that home prices are likely to drop about 4% through spring as sales slowly improve (for more information, see “U.S. Weekly Financial Notes: Shelters From The Storm,” published Jan. 28, 2011). …
We expect the next home price reports—which will come out in late February—to show price declines. The National Association of Realtors reported a 0.1% decline in the median sales price for existing homes on a seasonally unadjusted basis from October to November, as well as an additional decline of 0.8% in December. In addition, the value of the Federal Housing Finance Agency (FHFA) purchase-only home price index—another key home price indicator—declined 0.4% on a seasonally unadjusted basis in November 2010. …
We continue to be concerned that the volume of distressed residential mortgage properties in the U.S. suggests that the fledgling recovery has yet to have a meaningful impact on the housing market. … In terms of price impact, various reports indicate that distressed properties are currently selling for an average of 25% to 30% less than nondistressed properties.
As we’ve written previously, we think the November Case-Shiller was still pricing in economic activity from before the US recovery began accelerating. We also think the foreclosure slowdown will stall the rate of decline for house prices by limiting the supply of shadow inventory that comes to market.
But that doesn’t things are about to get better — they’re just not as bad as the last reading of the Case-Shiller suggested. It will take a long time, as S&P notes, for all the excess inventory to work its way through the system.
Meanwhile, S&P also finds that homebuilder shares have traditionally been a leading indicator for home prices. Here’s how they’ve been faring:
Homebuilder stocks responded to the deterioration in the housing market about 11 months ahead of the actual decline in the S&P/Case-Shiller home price indices.
Charts 11 and 12 [below] show the relative performance of the homebuilding sector and the S&P 500, which is a broad-based equity index. Again, using equity market behavior to test this relationship and the market’s interpretation of the current data, the homebuilding equity index seems to be showing slow recovery since early 2009.
Call us crazy, but these charts appear to be signalling “total stagnation” more than “slow recovery”.
Full report in the usual place.
Related links:
Shadow inventory update – FT Alphaville
The economic impact of the foreclosure slowdown – FT Alphaville
US housing double-dip, cont’d – FT Alphaville