FHFA Home Price Index for Minnesota Dec 2011

The FHFA updated their Home Price Index figures for Minnesota last Friday.  With all the confusion going on with which numbers are trustworthy or not, and the fact that I am not overly trusting of this data – I wasn’t sure if I should post it or not.

With the question of the NAR figures, it is probably more important to keep an eye on multiple sources, so I added the Case Shiller composite 20 index along side it.

Generally speaking, they track fairly close, unfortunately we are comparing Apples to Oranges here.  Minnesota vs. the Composite 20 from 2 different sources, but it is just a benchmark…  According to the FHFA home price index, Minnesota’s home prices are increasing.  This is highly suspect in mind as it goes against the raw MLS data from the Twin Cities region, which should account for a very large portion of the Minnesota sales..

Before I disregard this source, I do believe even with its flaws – it has its purposes.  This is not a great benchmark for tracking the market especially in real-time, primarily because it is a quarterly index.  However, it is probably a great source to view historical trends and the “larger picture”.



Draw an imaginary trend line from 1975 to today.  In theory that is where home prices will ultimately be.  We are getting close..

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S&P Interview with Karl Case and Robert Shiller on the Housing Market

Professor Karl Case and Professor Robert Shiller are probably the 2 most famous experts on the housing market.  They give a great interview answering the questions we all have on the housing market.  These 2 experts provide some valuable insight;  I heard some things I didn’t want to hear and also heard some things that are quite promising.  I can’t provide any more commentary without ruining what they have to say, so I am just providing the link for you to watch S&P’s interview.

(click on video image to link to S&P Interview)

Click to Watch Interview



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Commercial Property rebound? Moody’s Commercial Property Index Rose 2.4% in August

Office Space
Office Space (Image via RottenTomatoes.com)

Moody’s Commercial Property Index Rose 2.4% in August.

I may have a bit of egg on my face from some earlier posts I had commented on the commercial market.  My opinion was that I did not see the commercial market recovering before the residential market. I also said that the commercial market won’t recover until there is demand for office space and manufacturing space.  Hopefully I am wrong and the commercial market will lead the recovery for the first time in our history.  This report does not show a recovery, but it shows promising signs or just a blip – too early to tell, but still promising news.

U.S. commercial real estate prices rose in August for a fourth straight month as financially distressed properties made up a smaller share of transactions, according to Moody’s Investors Service.

The Moody’s/REAL Commercial Property Price Index advanced 2.4 percent from July. It’s up 7.2 percent from a year earlier and 15 percent from its post-peak low in April, the New York- based company said in a report today.

Read Full Article from Bloomberg


CalculatedRisk Graph (click on image to their website)


Moody’s: Commercial Real Estate Prices declined 4.2% in March, Hit new Post-Bubble Low (calculatedriskblog.com)

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Comparing the Minnesota Home Price Index to Inflation, are we at the bottom? Case Shiller, FHFA, and CPI

I pulled some stats from the St Louis Federal Reserve to see how real estate performs with inflation over time.  The result of this is not what I was expecting.  I wanted to show that home prices pace inflation proving it is a nice hedge against inflation.  That is true, however what I discovered is a little more interesting.

click to enlarge

The blue line is CPI, Core Inflation while the Red Line is FHFA’s Minnesota Home Price Index.  Up until the mid 1990’s the home price index tracked just above the CPI, just like I expected.  What I couldn’t help noticing is this Giant Bubble…  Home Prices are still approx 17% apart as of April 2011 (the latest Home Price Index on this chart).  We have dropped even closer since, so our spread is probably closer to 10% now, within negotiating terms.  Sellers are receiving approx 92% of their asking price now.  We are fairly close to the bottom when you look at it in those terms,  within 10% assuming the market doesn’t over-correct…

Going forward I believe we are going to see high inflation like we did in the later 1970’s and early 1980’s, probably more so.  (see Monetary Base chart from earlier post).   If inflation kicks in and home prices find their equilibrium with CPI again, the future may look something below (maybe with a few more peaks and valleys..):

Just a Guess at the Future

Interestingly enough, I spent some time downloading the CPI into excel and running that up against Case Shiller’s Index.  These are indexed at different reference points, so we are only really trying to gauge the separation between them not the actual index value.  The Case Shiller Index suggests to me that we are at bottom when compared to CPI, or at least very close to.  The Minneapolis Case Shiller Index is updated as of July 2011, probably more accurate than April 2011 from the FHFA Home Price Index…

What’s your prediction?  Care to take a guess?  Do you think we will over-correct first?  It is still anyone’s guess at this point…

Inventory has come down, rates are record lows, affordability all time high, rents increasing…  the only thing missing is jobs.

S&P Case Shiller Home Price Index 2nd Qtr 2011, Minneapolis vs Composite 20

There are some bright spots on the horizon from the 2nd Quarter report from Case Shiller Home Price Index.  Nationally we are up 3.6% back getting back to 2003 price levels.  A little bit of bad news, Minneapolis has led the decline by double digits posting a -10.8% year over year decline in values.  On the surface this sounds bad, but from my perspective I believe this is a good sign;  This number is partially reflective of the lower price points are selling in the Twin Cities which drops the overall Median and Average price, I don’t believe everyone’s home values dropped by 10.8% this year (maybe in some neighborhoods..)  Our inventory levels are shrinking and our pending sales are up 43% from last year, so we are in the recovery mode starting with the lower price points which will work its way up.  While the composite 20 is boasting “back to 2003 levels” for pricing, the Minneapolis region is still bouncing around 2001 pricing.   It sounds bad, but I believe this is the initial pain involved with healing our market.  To summarize, I believe our region has going through the painful correction quicker than the other areas and is poised for quicker recovery.  Our inventories are down, our prices are down making our affordability favorable to buyers – our current market activity is strong so pricing should be stabilizing if not increasing soon.  Of course, this theory could be wrong if our region doesn’t start producing jobs…

Data through June 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index increased by 3.6% in the second quarter of 2011, after having fallen 4.1% in the first quarter of 2011. With the second quarter’s data, the National Index recovered from its firstquarter low, but still posted an annual decline of 5.9% versus the second quarter of 2010. Nationally, home prices are back to their early 2003 levels.

As of June 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up versus May – Portland was flat. However, they were all down compared to June
2010. Twelve of the 20 MSAs and both Composites have now increased for three consecutive months, a sign of the seasonal strength in the housing market. None of the markets posted new lows with June’s report. Minneapolis posted a double-digit 10.8% annual decline; Portland is not far behind at -9.6%.  Thirteen of the cities and both composites saw improvements in their annual rates; however; they all are in negative territory and have been so for three consecutive months.

Case Shiller Composite 20 vs Minneapolis August 30, 2011