The new Case-Shiller data show a 4.4% increase in Q2 over Q1, but remember, that is based on an average for April, May, and June (on a monthly basis, the index rose 1.0%, not-seasonally adjusted).  The Case-Shiller data are important, and useful, but they do function as a “rear-view mirror,” showing us where we were, and not where we are. Although the tax credit expired in April, leaving a vacuum of demand in May and June, the Case-Shiller data have not had a chance to fully reflect that sudden dramatic weakening.

When we look back a year or two from now, the Case-Shiller data are expected to show a more accurate picture of where we were than the median existing home price numbers that get quoted so often by the press.  Medians are a hazardous and mis-leading way of measuring home prices in today’s environment.  You will be able to see an increase in the median even if every individual home goes down in value, just by virtue of the changing mix that will soon include a lot more of the larger, newer homes in more expensive neighborhoods.

It is also extremely important to dig down below the MSA-level.  In certain submarkets, builders are raising prices!  Example:  Boynton Beach, where GL Homes is the dominant builder, and they have been increasing all year (albeit by a small amount). There are other such examples.  Be sure to look at deals at a very narrow geographic level, because even within a county, there are significant differences among submarkets.  That is why we always do our research from the community level.

As we watch for leading indicators of future home price trends, we see that REO is unloading onto the market at a faster rate now in a number of markets.  This brings more price pressure, especially at the higher end. That also will be worse in some markets than in others.

 Worsening that situation:  the mortgage delinquency rate is now over 9% overall.   Cure rates are getting worse.  There are 2.5 mortgages that have returned to delinquency for every one that has actually improved.   Nationally, there are 4MM distressed mortgages (REO, in foreclosure or seriously delinquent).  There are also 4.1 MM households with mortgages who have more than 50% negative equity!

Remember also that two things happened:  we built too many homes, and we also created too many households.  Now the number of households is shrinking again as people double up, and that makes the excess supply even larger.  The excess housing is around 2.0 MM, and the loss of excess households is about 1.5 MM.  The excess households is why the future foreclosures will have such an impact.  The implication is that, as you absorb some of the 2.0 MM, you add more empty units through foreclosures, keeping that excess number from actually shrinking.  This is further evidence that we have not yet hit the bottom.

The latest statistics show that sales per subdivision were dismal in May, and only slightly better in June and in July.  California extended their tax credit, but it will not help much.  The former fence-sitters already bought, and that has left behind a vacuum of demand.  Sales contracts per project were down again in June, and ALSO for July versus year-ago, in Phoenix, Las Vegas, and San Diego.  Month over month, data show poor sales in June, with a little uptick in July in those markets.  In San Diego, June was even worse than MAY!

I encourage you all to watch the August release for new home sales.  I will not be surprised if the huge drop reported for July is attenuated with an upward revision.  Our research does not show that the drop was quite as drastic as the government data showed.