David Stiff, chief economist at Fiserv (which powers those somewhat-known Case-Shiller Home Price Indexes), stopped by this morning for a chat. In talking about how we might emerge from our housing malaise, he doodled on his notepad (which I’ve captured above thanks to help from Emilie at our photo desk). As a journalist, I have a duty to take complex concepts and boil them down to aphorisms, so I asked him what letter we might make out of his doodle. Not a V, or a W, or a U… We decided on “frying-pan-shaped.” What does it mean?
Stiff’s argument is two-part. First, a lot of the houses that are selling right now are foreclosures. In some markets, maybe even half of all homes sold. Eventually, the supply of cheap, bank-owned properties will recede, and we’ll see a price bump as home sales are again about people who are moving selling their houses. But that price bump will be short-term. Following the housing bust in the northeastern U.S. in the 1980s, home prices were fairly flat for four to five years. It takes a while for folks to regain their confidence to go out and buy a house—especially a more-expensive one. Hence the handle of the frying pan.
The “good” news is that Stiff is seeing some signs of stabilization in the Fiserv data. Compared to family income, home prices at the end of the March were just 7% above where they were in early 2000, at the start of the bubble. In other words, houses are almost back to where they were, affordability-wise. In fact, in 10% of U.S. metro markets, home prices relative to income are now lower than they were pre-bubble.
Before you get too excited, though, you might want to consider that Moody’s Economy.com, which uses Fiserv data in its forecasting model, doesn’t think that prices overall will stabilize—i.e., begin the handle part of the frying pan—until the second quarter of next year. But remember: that’s just a forecast.