Bank Failures: Crisis or No Big Deal?
Bank failures have the potential to spell disaster. Just how worried should you be?
If you're hoping to buy a home in the future and you're waiting for prices to decline, I'm afraid I have terrible news. That's probably not going to happen. At least not significantly.
You may have seen headlines this week about prices falling. The latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost eleven years. Big news, right?
But the month-over-month decline was only 0.2%. Yes, that's two tenths of one percent. And it was for the median home price, which isn't the same as appreciation.
The median home price is the middle price point of homes sold. If more lower-priced homes are sold versus more expensive homes in a given month, it will skew that median home price down. In fact, the median home price can move lower even when home prices overall are appreciating, depending on the mix of sales.
FHFA's latest appreciation report showed that home prices increased 5.3% year-over-year. And according to Case-Shiller, prices rose 3.8% during the same period. These are the two methodologies that best measure home price appreciation.
What's the difference between the FHFA and Case-Shiller models? FHFA excludes cash transactions. It only measures home values when there is a mortgage involved - and a conforming mortgage at that. Case-Shiller incorporates cash buyers and higher priced homes or jumbo loans.
Since the Case-Shiller index is reporting more conservative numbers than FHFA, one could extrapolate that the big drivers of home prices in a negative direction are cash sales and higher priced homes. The market is stronger for more moderately priced homes, and therefore the FHFA House Price Index is showing stronger numbers.
The media might make a big deal about this data. Remember, the more sensational the headlines, the more the media sells newspapers, clicks, and ads. Even when considering the more conservative Case-Shiller index, a decrease of 3% from peak housing prices is hardly what I would consider a "crash."
The moral of the story? Home appreciation, while modest, should continue to be strong in the year ahead. While we may see small declines in certain markets and at certain price points, significant price deterioration is unlikely.
