Editor’s note: Fiserv Inc., the bylined author’s employer, has owned the Fiserv Case-Shiller Home Price
Indexes since 2002. Although Scotsman Guide’s policy does not allow for company references in article
text or for authors to write about their proprietary
products, we have allowed references to the index in
the text because of its popular, mainstream use and
because of the objective nature of the piece.
Economists agree that the
housing market must stabilize before the U.S. economy can recover.
With the nation’s housing slump now in its
third year, all eyes are searching for signs
that a turning point has arrived.
Until the housing recession stabilizes
and improves, the mortgage industry must
work to stem the tide of foreclosures and
recidivism on modified loans.
Home-price data and forecasting tools
can help mortgage brokers make informed
loan-modification decisions that will
strengthen communities and the economy
now and in the future.
Stability hard to gauge
Current home values are required to structure loan modifications. To establish present home values, many mortgage-industry
participants use price opinions or list prices
of comparable properties. Some methods
that rely on using appraised or stated values
provide a perspective on value, offering an
educated guess about market trends, while
others compare actual prices paid for the
same property during subsequent sales.
One method of aggregating the purchase and resale prices of individual properties into market-specific price indexes
was developed by economists Karl E. Case
and Robert Shiller. The Case-Shiller Home
Price Indexes continue to use the methodology, which investors and financial-indus-try participants follow widely.
As important as it is to track these price
changes through time, having an idea of
what home values likely will be in the future is perhaps more important to lenders,
investors, homebuyers and brokers. This is
especially true in the current environment,
as industry participants face a massive
wave of mortgage loan modifications and
refinancings. Home-price projections can
include data such as local income trends,
demographics, joblessness and changes in
In addition to looking at home prices,
looking at inventory levels of existing and
new homes, measures of affordability and
other macro-economic factors provides important insights. While some of this data
shows preliminary signs that the housing
market is starting to stabilize, it’s still too
soon to say that the worst has passed.
“As important as it is to track price changes through time,
having an idea of what home values likely will be in the
future is perhaps more important to lenders,
investors, homebuyers and brokers.”
not fully reflect the direct effects of the
credit crisis on mortgage lending or the
indirect effects of a severe and sustained
economic recession. Even when accounting for those detrimental effects, some
forecasts show average U.S. home prices
stabilizing in early 2010.
In many markets, prices are projected
to vary for two to three years after they
stabilize as mortgage markets recover
and homebuyers regain the confidence
to purchase in places where prices fell
In bubble states, however, home prices
must decrease by another 15 percent to 25
percent to restore housing affordability to
Further, these areas of the country
have large inventories of unsold homes
because of overbuilding and current high
foreclosure rates. After they hit bottom,
home prices in these areas likely will remain flat for four to five years as homebuyers recover from the shock of seeing
prices drop by 50 percent or more in
It also is important to keep in mind
that even when the housing-market collapse ends, home prices in nearly all markets still will be greater than they were in
When they reach their trough —
likely, later this year — U.S. home prices
still are projected to be 21 percent more
than they were at the start of 2000.
This offers some reassurance, but it also
means that housing during the first decade
of this century was not a good investment.
Annual inflation likely will end around 3
percent by the close of 2010.
Then again, compared to stocks, which
have lost about 30 percent to 40 percent
of their value since the beginning of 2000,
housing doesn’t look so bad.
■ ■ ■
One important data point — the inventory of unsold homes, tracked by the
National Association of Realtors (NAR) —
provides a glimpse of the uncertainty that
remains. According to NAR, total housing
inventory at the end of this past March fell
1.6 percent to 3.74 million existing homes.
That represented a 9.8-month supply at
the then-current sales pace, compared
to a 9.7-month supply this past February.
Thus, even though the inventory dropped,
the months’ supply increased.
Prices may be stabilizing
Housing affordability has improved because of steeply falling home prices and
According to current forecasts, when the
home-price adjustment is complete, only
26 metropolitan markets — all of which
are located in California, Nevada, Florida
and Michigan — will revert to home prices
below those seen in 2000. That’s less than 7
percent of a total of 381 metropolitan market areas nationwide.
Those data points are small consolation for families with negative equity
in their homes. But they remind us that
economic downturns, however painful,
Ultimately, before and after the downturn, brokers should seek the best data
available and use it to help themselves and
Illustration: Dennis Wunsch
David Stiff is chief economist of Fiserv Inc., the leading global provider of infor-mation-management and electronic-commerce systems for the financial-services
industry. Stiff is responsible for the Fiserv Case-Shiller Home Price Indexes, which
include home-price data owned and generated by Fiserv. They cover more than
3,000 U.S. ZIP codes, 300 counties and 100 metropolitan areas along with state
markets. Reach Stiff at firstname.lastname@example.org.
lower interest rates. The ratio of home
prices to family income peaked in late 2005
into early 2006, when real estate activity
reached bubble levels in Arizona, California, Florida and Nevada.
There also are signs that housing
demand finally may be stabilizing. Single-family home sales began to level out at 4. 3
million units per year early in 2008, but
this steadying of demand came undone in
the September 2008 meltdown in the financial markets.
Nevertheless, it appears that sales volume may be reaching a new bottom near
4 million single-family units a year. Downward pressure on prices likely will remain
intense throughout this year, however,
because distressed properties account for
more than half of sales, according to March
data from NAR.
Those properties typically sell for 20
percent less than other properties, NAR
Affordability and inventory data may
On the Web
Q&A with Case-Shiller Home Price
Index co-founder Karl E. Case