Do Reports of Falling Home Prices Have You Down in the Dumps?

Open-House-sign real estate

Almost every business day, the economic calendar has a scheduled releases of one of several different indices relating to unemployment, prices and overall economic growth.  Each piece of data is supposed to be a brush stoke on the economic canvas.  Collectively, they are supposed to paint a picture of our economic future.  One of the key components that receives considerable attention of late is the S&P/Case Shiller Index.

This report is released every month and is based on data gathered from two months earlier.  If you visit the Standard and Poors website, you will see that their formal name of the report is the S&P/Case Shiller U.S. National Home Price Index.  Their most recent report, released March 29th informs us that home prices have dropped 3.1% over 2010.   As a buyer or a seller in the Northern Indiana market, I’m not sure I would put too much into this data for a number of reasons.

Firstly, the data is old.  This is even more so the case with the latest report.  The report examines home sales transactions that closed in January.  Normally, those would be homes under contract in December.  However, refinance loan volume was so high in the 4th quarter of 2010, underwriting queues were  significantly backed up.  Most of those January closings on a national level were transactions that went under contract all the way back in October or November.

Secondly, while the S&P/Case Shiller claims to be a U.S. National Home Price index,  they actually only evaluate 20 markets across the country.  What is the closest market to Fort Wayne?  Not Indianapolis–Indy isn’t even included.  Chicago is the closest geographically, but on several levels, is hardly emblematic of Fort Wayne or even South Bend for that matter.

Also, the Case Shiller ignores all multifamily homes, condos and new construction.  While the Chicago real estate market has been devastated by the economic slow down that began more than three years ago, Their market has a much higher saturation of condo sales that are left out of the report.  So, even the Chicago market may not be down as much as the report suggests.

What is the number one piece of data I like to rely on when trying to gauge the strength of the real estate market in Northern Indiana?  I look at the number of loan applications coming into Ruoff.  It is “now”–real time data.  It is here in our own backyard.  I have the luxury of being able to see it with my own eyes and this is what I see.

The first 75 days of 2011, there was a dramatic drop off in mortgage applications with the total number being less than 60% as compared to the same period a year ago.  However, since the 21st of March, the pace of applications has exploded to levels similar to those realized at the height of the refinance boom in Q4 of 2011.  There is one big difference.  These are largely not applications to refinance.  They are purchase transactions.  It very well could be the tell-tale sign that we are finally bouncing of the bottom of the housing price curve.  Unemployment is now well below 9%.  Not a terrific number, but at 8.8%, the consistent downward trend over the last 6 months has been encouraging.

Why is it a good time to “buy up”? For several reasons.  While home prices may be in the early phases of an upward bend, there are incredible deals to still be had.  Timing is everything and real estate is no exception.  Interest rates began creeping upward at the end of last year, but over the last three weeks, they have stabilized  and pulled back some.  They remain at historically low levels.

Lastly, in spite of the recent surge in applications, underwriting queues are still very low.  You can get under contract on a home and closed in less than 30 days at Ruoff Home Mortgage.  To get your application started or to request a rate quote, go to www.ruoff.com.  To learn more about the S&P/Case Shiller U.S. National Home Price index, go here.