Home Prices Heading Up, But Haven’t We Seen This Before?

According to the S&P/Case-Shiller Home Price Indices, home prices are going up all over the country. Do these increases signal that we’ve reached bottom and are heading into a period of sustained price increases?

In my last blog I said that S&P/Case-Shiller 20-metro composite index had risen for the last three reported months in row (that’s April, May & June, because of their reporting lag). I remembered that in the last couple of years we had seen another time or two when the long downhill slide hit a price-rise bump, only to turn back down, and more than lose whatever had been gained.

So I thought it would help to compare this time to the recent prior upturns to see if we can get a clue whether this time will be different.

Let’s put the current increase in perspective. From March to June of this year the 20-metro composite index has gone up from 137.63 to 141.30, an increase of 3.67 points. (Remember that these numbers measure home prices at a point in time compared to the price pegged at a value of 100 in January 2000.) This 3-month period of increases feels minor compared to the initial 33 consecutive months of decrease in home prices during the initial sustained slide in prices from the July 2006 peak. During that slide the index fell from a high of 206.52 to 139.26, a loss of 67.26 points. That makes our recent 3.67 point uptick seem minor indeed.

Notice that initial slide ended at 139.26, in April 2009, and we’ve just passed through that same price territory this spring, two years later. What’s happened in the meantime?

Two years of comparatively shallow rises and falls in prices leaving us close to where we started at the bottom of that first slide. Two periods of consecutive months of price increases occurred but were not sustained. Six months of increases totaling 6.51 points, turned into 5 months of price decreases, then 4 months of increases totaling 5.55 points, were followed by a tumbling of prices down to 137.63 this last March, lower than the initial low point nearly two years earlier.

Just from looking at this recent history, our three-month, 3.67 point string of consecutive increases does not look very impressive. At 141.30 points in June, we haven’t gotten close even to where the index had climbed to even just last July, 148.98 points.

One positive sign is the geographic breadth of the current upturn. With the sole exception of Las Vegas, home prices in every other one of the 20 metropolitan areas have increased during this current 3-month March –to-June run. Of these 19 areas, 14 of them had increases in every single month, indicating some consistency within each market as well as across the whole country.

But this was all before the debt-ceiling fiasco, the Standard & Poor’s U.S. credit rating downgrade, and steep dives in both the stock market and in consumer confidence.  Sorry to say, the recent signs are not promising for a steady and consistent increase in home prices.

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What IS the “S&P/Case-Shiller Home Price Index”?

Home prices are edging up. At least according to the latest monthly S&P/Case-Shiller Home Price Index released in late August. It shows that home prices went up in every single one of the 20 metropolitan areas included in this index.

I’ll look more closely at these price increases and tell you about them in my next blog. But today, I got curious—I’ve been hearing about this index for years without knowing what it’s actually measuring. So I dug a little and here’s what I found out.

At 9:00 a.m. Eastern Time on the last Tuesday of every month, Standard & Poor’s Financial Services releases the S&P/Case-Shiller Home Price Indices. It’s actually not a single index, but a group of them measuring “the average change in home prices” on a monthly basis in different geographic markets. There’s a separate index for each of twenty major metropolitan areas, and also these are “aggregated to form two composites–one comprising 10 of the metro areas, the other comprising all 20.”

These indices measure single-family home prices in comparison to what they were in January of the year 2000.  The price of homes as of that date in each of the metropolitan areas was assigned an index value of 100, with increases or decreases each month based on the percent change in value from that base value. So, for example, an index value of 150 at any particular point in time indicates a 50% increase in home values from what they were as of that base January 2000 date.

It helps to know that the indices reflect only changes in price to single-family homes—not condominiums (they have a separate index for that), co-ops, or multi-family homes. Also brand-new homes aren’t included because of the focus on change in price.

A couple timing aspects are worth understanding. When the indices are made public every last Tuesday of the month, they are for the calendar month nearly two months earlier. So the ones released last week are for June. Also, that set of “June” home prices actually is a three-month moving average, so it includes data for April, May, and June. That’s done for certain statistical reasons to make the conclusions less volatile and more reliable, but seem that would also make them less sensitive to changes in value, and somewhat outdated.

I’m not going to go into the methodology used for the indices, except to say that it was developed in the 1980s by two economics professors, Karl E. Case and Robert J. Shiller, and “uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.” If you want to know more, click on “Methodology” to read a 40-page explanation, including multiple pages of calculus formulas, if that’s your thing!

As I said, more on the just-released information in my next blog. But I’ll reward you for reading this far by telling you that the 20-metro composite index has risen for the last three months in row, going up about 3.7% in that time to a current value of 141.30. But considering that four years ago at the top of the real estate bubble this index was at 206.52, we still have a long, long climb ahead. And that’s if we keep going in a positive direction, which by no means is a sure bet.

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Another Five Ways to Save Your Home through Chapter 13

In my last blog I gave you the first five of ten big ways that Chapter 13 allows you to keep your home.  Here are the other five.

 

6. If you need to sell your home, Chapter 13 usually gives you much more time to do so than a Chapter 7 case. More time means more market exposure, which usually means selling at a better price. That’s especially true if you are otherwise forced to sell during a slower time of the year, or are trying to sell on a short sale (where the house is worth less than the debt against it). If you are behind on your mortgage payments and in danger of a foreclosure, a Chapter 7 case will usually only buy you an extra three months, and sometimes even less if the creditor is aggressive. Often the only way to stop the foreclosure is by paying the entire arrearage of payments, interest, late charges, foreclosure fees and attorney fees in a lump sum, often totaling tens of thousands of dollars. In contrast, in a Chapter 13 case you can usually maintain the status quo and stay in the house by resuming regular monthly mortgage payments and making meaningful progress towards paying the arrearage. If there is sufficient equity in the property, most or even all the arrearage can often be paid from the proceeds of the anticipated sale, reducing what needs to be paid monthly before then.

7. If you are behind on your child or spousal support obligations, Chapter 7 does nothing to stop collection efforts against you on those obligations, including against your home. Support obligations in most cases turn into liens against the real estate you own, including your home, often giving your ex-spouse the ability to force the sale of your home to pay the support arrearage. On the other hand, Chapter 13 does stop most collection efforts during your case as to any support arrearage which existed as of the time your bankruptcy is filed.  Your Plan must show how you are going to pay that arrearage before your case is completed, and you must stay current on those Plan obligations. But as long as you do, any support lien cannot be enforced against your home. At the end of your Chapter 13 case, you will have paid off the support arrearages, so the lien will be released, with no further risk to your home. (Important: Chapter 13 does NOT stop collection against any new support that you fail to pay after the filing date, so you must stay current on any such new obligations.)

8. In our last blog, I showed how Chapter 13 is usually the better option when dealing with an income tax lien against your home. There I used the situation in which the lien is on a tax debt that cannot be discharged—written off—in bankruptcy. But if the tax upon which the tax lien has been recorded can be discharged—because it is old enough and meets the other conditions for a dischargeable tax debt—dealing with the lien against your home in this situation is also better under Chapter 13. Depending on the amount of equity you have in your home and other possible factors, the IRS or other taxing authority may well not release the tax lien even after the underlying tax debt is discharged in a Chapter 7 case. In a Chapter 13 case, in contrast, there is an established mechanism for determining the value of that lien, and for paying it, so that at the completion of your case the tax debt is discharged and its lien is satisfied.

9. If you have fallen behind on property taxes, Chapter 13 is often the better way to deal with them. Usually, being current on property taxes is a condition of your mortgage, giving your mortgage lender an additional independent reason to foreclose if you are not. (This assumes you are not set up to pay the taxes through the “escrow” portion of your mortgage payment, but rather directly to the property tax authority.)  By showing in your Chapter 13 Plan how you are curing your property tax arrearage—even if it takes years to do so—your mortgage lender is no longer able to say you are in breach of your mortgage and justify foreclosing on that basis.

10. Saving the most obvious for last, people often file Chapter 13 to prevent a Chapter 7 trustee from taking assets that are worth more than the applicable exemptions. And that applies to your home as much as anything. If you have more equity in your home than the homestead exemption allows, you risk losing your home in a Chapter 7 case. That risk is aggravated these days because the highly irregular housing market makes property appraisals difficult to predict accurately. Chapter 7 trustees have a great deal of discretion, and predicting how aggressive yours will be is made even more difficult because in most places there is no way of knowing which trustee will be assigned to your case. In contrast, usually all Chapter 13s in a region are assigned to the single local “standing trustee.” So we are familiar with his or her inclinations. Even more important, Chapter 13 provides a much more predictable procedure for determining the value of a home, and a mechanism to protect the value of the home in excess of the homestead, if any.

In a nutshell, Chapter 13 provides quite a number of tools to help you keep your home. Simply said, it gives you more control over the situation. It is definitely not the automatic answer just because you have a home in distress, because Chapter 13 certainly has its limitations. But it is often a powerful option that you should discuss carefully with your attorney.  

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