North American Housing Price Report for January

Our North American Housing Price Index registered a modest 1.67% increase from December, supported by a rise at the bottom of the market. The drop from May - when we started the Index - is now 14.46%, representing a massive fall in the North American housing markets, and likely correlated by a similar drop in the valuation of bank mortgage portfolios. On an annualised basis the Index suggests the market is down 21.69%, a truly stunning loss.

In the United States, IRS requirements have made claiming the house purchase tax credit rather arduous. This will put a damper on the 'no-money-down' schemes that were being used to have the tax credit stand in for a down payment. Apparently government-backed loans are now about 90% of the market in the US and essentially all in Canada (where many borrowers are having the nasty surprise of balloon notes coming due without any means to refinance them).

The cumbersome tax credit, along with the spectre of interest rate hikes in the future - thus influencing the interest rate on mortgages - will likely collude to continue depressing house prices across the continent. Simply put, the North American housing market is now stuck wheezing in the cold, heavy iron-lung of the state. The crash may be very prolonged, with Governments desperately attempted to prop up prices which should be falling.

Housing Price Report for December

Our North American Housing Price Index registered a 6.46% drop from November, which likely would have been much deeper if we had not seen a sharp uptick on the top of the housing market. The drop from May - when we started the Index - is now 15.86%, representing a massive fall in the North American housing markets, and likely correlated by a similar drop in the valuation of bank mortgage portfolios. On an annualised basis the Index suggests the market is down 27.18%, a truly staggering loss.

That 27.18% drop strongly suggests the stimulus effect of the US Government's tax credit has worn off. Record low rates for conventional mortgages seem to be little help as few applicants qualify for the new, stringent requirements. All in all, we declare that the housing crash appears to have resumed.

Given the huge shadow inventory of foreclosed houses, the impending wave of Alt-A defaults, high unemployment, and falling income across the board, there is essentially no hope the housing market will find 'a bottom' any time in the foreseeable future. Additionally, the 8.9% rise in housing starts reported by Forbes will only add to the pain of existing housing stock, as new - and difficult to move - houses come into the market and further drive down already distressed property.

We expect the bottom, when it comes, will be shockingly low. We boldly predict a real price decline somewhere in the neighbourhood of 90% on average, peak to trough. In some places, such as Las Vegas, we expect a decline of 100% as the whole urban field there becomes indefensible. Attractive urban centres will fare the best, but it will be grim consolation.

Price declines may be obfuscated by inflation, if that should arrive. Given the devastation banking elites would suffer in a true deflation, we suspect the 'powers-that-be' will attempt to engineer a burst of high inflation to save the banks. On the other hand, such efforts may be unsuccessful, as it would be exceedingly difficult to discern the optimum amount of money-printing. As powerful as banking elites are, they may be sacrificed on the altar of the Almighty Dollar.

Housing Price Report for November

Our result for the first six months of our North American Housing Price Index is a drop of 10.45%. This is a very serious drop, and has implication for more than just the house owners who need the value of their houses to say up. It also means that, on average: the housing collateral on bank balance sheets is impaired by around 10%; any and all securities of bundled mortgages have seen their value reduced by 10%; any house owners relying on the value of their house to keep up appearances have seen their appearances reduced by 10%.

Prices are showing some sign of improvement in the USA, which is to be expected thanks to the Federal Government's herculean efforts to prop up the industry.The 10% US Federal income tax credit has been extended, and all things being equal, this will tend to keep prices in the USA 10% higher than they otherwise would be. We'll be watching for a sudden fall when the program ends, if ever.

Interestingly enough, though, we are seeing some weakness in the Canadian housing market. This strikes us as rather odd, as the credit available to Canadian Citizens is still growing at a respectable clip. Additionally, the Federal Government has a very direct hand in guaranteeing mortgages in Canada, whereas the U.S. Federal Government only proves a wishy-washy guarantee to bail out banks.

Frankly, it seems that the animal spirits are friskier in the United States than Canada, undoubtedly supported by the U.S. Federal Government's housing tax credit. It is also possible U.S. Citizenry is a bit more credulous of the 'recession is over' propaganda than are the Canadians; it's time for Americans to do their patriotic duty and spend, spend, spend!

Housing Price Report for October

Our result for the first five months of our North American Housing Price Index is a drop of 11.64%. As previously mentioned, we attempted to make an adjustment to not skew the data by the 'higher end' of the market. Because of recent strength in the 'lower end' of the market, the overall index is showing signs of stability.

Is this a sign of the 'bottom' in the housing market? We think not. Sales have been boosted by the much-trumpeted 10% US Federal income tax credit. Just as auto sales 'crashed' after the cash-for-clunkers plan was suspended, so too will housing sales wilt as the tax credit is wound down.

Housing Price Report for July

Our result for the first two months of our North American Housing Price Index is a drop of 1.36%. We've gotten a bit of month-to-month volatility, but hopefully that will smooth out as we go along.

We're noticing more properties coming to market in some locales. It will be telling to see if the market can absorb the supply, or if it will have - as we expect - a depressing effect on prices.

Tune in next month for our update.

Housing Price Report for June

As promised, we are returning with our North American Housing Price Index. We do not claim that this is completely representative of North America as a whole, only that it is honest and not massaged to put a spin on things.

Our first result was a bit of a shocker, even to us: A drop of 9.65% in one month! So, whatever you might be hearing about 'green shoots' - it's not happening in residential real estate.

We noticed the pull downwards was from a lot of distressed properties (i.e. foreclosures) being brought to market. Since there seems to be no end in sight for the foreclosure flood, this trend will likely continue.

Tune in next month for our update.

An Index is Born

Today we have created a housing price index for ourselves that covers diverse cities in Canada and the USA. We do not claim it will be completely representative, just that it will be completely honest and not subject to manipulation by government authorities or commercial interests.

In one month's time, and monthly thereafter, we will update our index and let you know if housing prices are rising or falling as we measure them. We are naming the index The Frugal Scotsman's North American Housing Price Index.

We suggest you set up some indexes of your own for the costs of things that are important to you. Don't rely on official measures of inflation or deflation to tell you where prices are going. There is too much 'riding' on official numbers to trust them.