I rely on the major sales-price indexes – Case-Shiller, Federal Housing Finance Agency (FHFA) and CoreLogic – as much as the next guy (or the next housing economist, anyway). They’re essential for understanding where home prices have been going. But they come out between five and eight weeks after each month ends, and the sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the housing market now.

Starting today, we’re closing this gap. The Trulia Price Monitor and the Trulia Rent Monitor show every month what’s happening to asking prices and rents almost in real-time. By focusing on asking prices and releasing each month’s Monitors just days after each month ends, we can detect price movements at least three months before the major sales-price indexes do.

What are the Trulia Price Monitor and Trulia Rent Monitor?
To create the Trulia Price Monitor and Trulia Rent Monitor, we take all the for-sale homes and rentals ever listed on Trulia.com and calculate how asking prices and rents changed month by month. Rather than simply tracking the average or median, we adjust for the changing composition of homes that are listed each month. Therefore, these Monitors reflect the price and rent trends for similar homes in similar neighborhoods over time. For the Trulia Price Monitor, we also account for the regular seasonal fluctuations in asking prices in order to reveal the underlying trend in prices.

The Trulia Price Monitor differs from the major sales-price indexes in important ways.

First, we focus on asking prices. Final asking prices lead sales prices by about two or three months, reflecting the time that homes are typically on the market. In 2011, the Trulia Price Monitor’s national month-on-month changes track the seasonally-adjusted month-on-month changes in Case-Shiller and FHFA two months later.  Asking prices, however, are NOT a perfect predictor of sales prices: the final sales price for a home can be above or below asking, and some listed homes might not sell. Asking prices and sales prices each have their advantages for understanding the housing market: asking prices have the advantage of showing current market conditions and trends, but sales prices are the best guide to historical and long-term trends in the housing market.

Second, the Trulia Price Monitor uses a different statistical approach: a “hedonic” rather than “repeat-sales” method. The explanation gets technical pretty quickly, but we’ve provided all the details in our FAQs.

Here’s what to expect from us: in the first few days of each month, we will publish price and rent trends for the previous month, for the nation as a whole and for the largest metro areas (for prices, the 100 largest; for rents, most of the 100 largest). We report monthly, quarterly and yearly changes nationally, plus quarterly and yearly changes at the metro-level. Our approach lets us dig deep: in the future, we’ll look at price trends for single-family homes versus condos; homes with one, two and three or more bedrooms; downtown versus suburban trends; and more. Have some other comparison that you’d like us to make? Email us and let us know.

Madness! Asking Home Prices Moved Up in March
Let’s get to the facts. Nationally, asking prices on for-sale homes were 1.4% higher in March than one quarter ago. Prices increased month over month by 0.9% in March and 0.6% in February. What we found through the Monitor is that asking prices had been declining prior to February and reached a low in January 2012. Throughout 2011, asking prices rose slightly in several months of the year, but never more than 0.2% in a month. Asking prices in March were 0.7% below their level one year earlier.

One thing to keep in mind — because the Trulia Price Monitor is seasonally adjusted, these monthly and quarterly increases are on top of typical springtime price jumps. Without adjusting for seasonality, asking prices rose 2.4% quarter over quarter.

Asking Home Prices Are Looking Up for the Sunshine State
But all housing is local. On the up side, the Trulia Price Monitor revealed that asking prices rose year over year in all large Florida metros, and fastest in Cape Coral-Fort Myers and Miami. Asking prices also rose in Phoenix, Pittsburgh and the Detroit area. Meanwhile, local housing markets in much of the West continue to struggle. Prices fell most in Tacoma and Seattle, followed by Sacramento and Las Vegas. All large California metros saw year-over-year price declines. Just check out this metro-level map  and see for yourself. Florida and Michigan are looking mighty green (which means rising prices) whereas California is in the red (which means falling prices).

Why do we see price increases in some places and price declines in others? As a general rule, prices are now rising faster in places where prices fell more during the bust and where vacancy rates are higher. In other words, many of the local price increases are bouncebacks: Cape Coral-Fort Myers, Miami and Phoenix all saw huge price drops after the bubble burst and big increases in asking prices this past year. But there are exceptions: Las Vegas prices continue to fall, even after years of steep price declines.

Note: Rankings based on the year-over-year changes in asking price among the 100 largest U.S. metropolitan areas. Want to see the full list of price and rent changes for all 100 metros? You can download it here.

No Wonder Your Landlord is Smiling
What about rentals? Nationally, rents rose by 5.0% year on year: unlike prices, rents have been moving steadily upward. During the recession, some owners lost their homes and became renters instead; also, many younger adults deferred the leap from renting to owning. Strong rental demand, combined with little new rental construction, pushed rents higher.

Asking rents rose over the past year in almost all large metro areas included in the Trulia Rent Monitor – regardless of whether asking home prices were going up or down. For example, rents rose strongly in Miami (12.1%) and Denver (9.9%), where for-sale prices also increased. Meanwhile, rental affordability declined in places where rents rose while prices fell, most notably in San Francisco (rents up 11.1%), Seattle (9.7%), San Jose (9.4%) and Boston (9.2%). As for the very largest metros, rents rose 6.2% in New York and 6.1% in Chicago, but only 0.6% in Los Angeles.

So what drives rent trends? Employment growth matters most. San Francisco, Denver, Seattle, San Jose and Austin all had high year-on-year employment growth (through February 2012, according to the Bureau of Labor Statistics) and big rent increases.

Is This Bounceback Here To Stay?
Will these price and rent increases continue? Continued job growth plus declining inventories equal more buyers chasing fewer homes – and therefore higher prices. The big wildcard for prices is the next wave of foreclosures. The robo-signing settlement will accelerate foreclosures, which will ultimately depress prices in neighborhoods where foreclosures are concentrated. Rents this year depend on both job growth and new construction: last year builders broke ground on many multi-family buildings, which should come to market later this year and dampen rent increases.

Want to be the first to know how foreclosures, construction and jobs are affecting prices and rents in April? Come back in early May, when we’ll release the April 2012 Trulia Price Monitor and Trulia Rent Monitor.

The housing crisis hurt some states especially hard. In those states, like Florida and Nevada, the Republican presidential candidates couldn’t ignore housing. But in states that weathered the housing crisis better, the candidates won’t spend precious money and attention on housing policy.

To see which states are suffering most, we created a Housing Misery Index. Like the original Misery Index, which adds together unemployment and inflation, our Housing Misery Index takes two important indicators of a state’s housing market and simply adds them together. For every state, we add (1) the percentage change in home prices from the peak until today, from FHFA, and (2) the percent of mortgages either severely delinquent or in foreclosure, from CoreLogic.

Why these two indicators? First, big price drops lead to more underwater borrowers and less household wealth, which hurt the housing market and hold back economic recovery. Second, defaults and foreclosures damage consumer confidence in the housing recovery, and foreclosures cause pain not only for people who lose their homes but also for their neighbors.

States That Are Most Miserable When It Comes To Housing

Note: Index is sum of peak-to-2011Q4 price decline (FHFA) and 2011Q4 delinquency (90+ days) plus foreclosure rate (CoreLogic). Top ten states ranked by the housing misery index are shown.

Nevada, Florida, Arizona and California top the housing misery list: they all had huge price declines and lots of foreclosures. The gap in the index between California at #4 and Michigan at #5 is big, so the top four states are much more miserable than the rest. States with bigger price declines tend to have more delinquencies and foreclosures. However, some states have delinquency and foreclosure rates that are out of line with price declines: Florida, New Jersey, New York, Illinois and other states where foreclosures must  go through the courts have more homes stuck in foreclosure than states with similar price drops, boosting their misery index scores.

What does the housing misery index mean for the election? If candidates want to talk about what voters want most, they should focus on housing issues where it’s clearly a pain point for voters. This means that after next week, we probably won’t hear much about housing from the presidential candidates again until the summer. This chart presents the housing misery index for all states, in order of the Republican primary and caucus calendar:

The 2012 Republican Primaries and the Housing Misery Index

Note: Index is sum of peak-to-2011Q4 price decline (FHFA) and 2011Q4 delinquency (90+ days) plus foreclosure rate (CoreLogic). Missouri’s caucus is March 17 even though its primary was February 7. Texas’s primary is scheduled for April 3 but could be delayed. Idaho’s caucus is March 6 even though its non-binding primary is May 15.

In the two most miserable states – Florida and Nevada – the Republicans have come and gone: there they argued about housing without presenting bold new ideas. The third most-miserable state — Arizona – votes next Tuesday (along with Michigan), and the last of the top four – California – doesn’t vote until June 5. That’s a long quiet period between Arizona and California if the candidates choose to pipe up about housing only in the states where the market is really hurting.

If one of the Republicans wakes up with a great new housing idea in March, when and where will we hear about it? Any housing speeches for Super Tuesday (March 6) should be given on the trail in Idaho or Georgia, which have the highest housing misery index of the many states voting that day. Among states voting in April, Rhode Island and Maryland has the highest misery index; in May, it’s Oregon. Those are where candidates should deliver their springtime housing speeches.

But if candidates save their housing ideas for the most miserable states, next week’s Arizona primary could be the last time we hear about housing until June in California.

Government, the mortgage industry and forces of nature all shook the housing market in 2011. They had both an immediate impact and slow-burning effects, setting the stage for a bumpy 2012 with more foreclosures, political battles and local market risks.

1) Robo-Signing Reverberations

The “robo-signing” scandal – where banks were accused of approving foreclosures with incomplete or incorrect documentation – exploded in October 2010, but where are we now? Banks want a settlement in order to avoid costly, drawn-out lawsuits. One is shaping up that could reduce loan balances or interest rates for current homeowners, give payments to people who lost their homes and establish new mortgage servicing standards for the future.

Even if you think there’s money coming to you because you lost your home, don’t start spending against your settlement windfall just yet. One estimate from the Wall Street Journal is for a settlement of $25 billion if all states participate. Another report from TIME says that will translate into $1,500-$2,000 for households who were mistreated in the foreclosure process. A couple thousand dollars will give people some breathing room, but it won’t change anyone’s financial lives. And, be patient: it could be months before a deal is reached, an administrator is in place and the details are finalized.

Until that’s all figured out, here’s the immediate drama: who’s in and who’s out? Some states might hold out for a better deal or decide to sue these mortgage servicers directly, as Massachusetts has. California was the first and most vocal state to back out, and New York, Delaware, and Nevada have spoken out, too.

What Really Mattered: The threat of robo-signing lawsuits made banks gun-shy about pursuing foreclosures in 2011, which left many homes stuck in the foreclosure process. But once a settlement is reached, we’ll see a rush of foreclosures in 2012.

2) The Debt Ceiling and the Budget Deficit

The federal government is running a deficit — it is spending more than it collects in taxes and other revenue – so it borrows to cover the gap by issuing debt. When there’s a deficit, we add to the pile of debt. To shrink this pile, the government needs to collect more than it spends (or, if you prefer, spend less than it collects) and use the surplus to reduce the debt.

In August, the government played a game of chicken over whether to raise the debt ceiling – which is really just a formality acknowledging that the deficit requires issuing debt to keep the government going. However, the right way to deal with the debt is to reduce the deficit – not by fighting over the debt ceiling.

Long before the debt ceiling debate and Standard & Poor’s federal credit-rating downgrade, we all knew that the federal budget was in bad shape. The debt ceiling debate rattled the markets and consumer confidence temporarily but interest rates stayed low. The important effect was that Congress created a bipartisan supercommittee to tackle the deficit – but it couldn’t reach agreement by its November deadline.

What Really Mattered: The deficit-reduction supercommittee teased us with some policy proposals that will surely rear their heads again. One idea that both Republicans and Democrats didn’t totally disagree about was reducing the mortgage interest and other tax deductions. If and when that happens, high-income homeowners with mortgages would pay a lot more in taxes.

3) The Expansion of HARP

In October, the Federal Housing Finance Agency (FHFA) said seriously underwater homeowners will be able to refinance through the Home Affordable Refinance Program (HARP). Originally, refinancing under HARP required a loan-to-value of less than 125% — that is, you couldn’t be more than 25% underwater – but that rule goes away for fixed-rate mortgages. But there’s a catch! Loans must be guaranteed by Fannie Mae or Freddie Mac, and – more importantly – borrowers must be current on their payments and must not have missed a payment in the last 6 months.

What Really Mattered: Some seriously underwater borrowers who fell behind on their payments in hopes of negotiating a loan modification are now kicking themselves because those missed payments make them ineligible to refinance. But those who can and do refinance will have lower monthly payments and extra money to spend — which will help stimulate the economy.

4) Natural Disasters Cause Insurance Disaster?

In 2011, several tornados, floodings and a hurricane temporarily halted what little construction there was to begin with, but this was just a short-term slowdown. The bigger long-term effect was the near-collapse of the federal government’s National Flood Insurance Program (NFIP). Still struggling financially under debt amassed after Hurricane Katrina, the NFIP’s insurance premiums don’t fully cover insurance claims when disaster strikes. August’s Hurricane Irene and its flood damage returned this problem to center-stage.

What Really Mattered: In flood-prone areas, you can’t get a mortgage if you don’t have flood insurance. Without NFIP, housing markets in these areas would skid to a stop. Could the program actually expire? It could, but as part of last week’s payroll tax agreement, the program got a last-minute extension until May 2012. No doubt, the political fight over this program’s long-term future will continue in into next year.

5) Lowering the Conforming Loan Limit

Starting in October, the government lowered the upper limit for loans backed by Fannie Mae or Freddie Mac or insured by the Federal Housing Administration (FHA) from $729,750 to $625,500. Why? Government agencies now back or insure most loans, but it’s time to make the housing market less dependent on the feds. Lowering loan limits is one step in that direction; however, the real estate industry has urged the government to push the loan limits back up. And you know what? They scored a half-win in November, raising the loan limit back up for FHA loans but not for Fannie and Freddie.

What Really Mattered: Mortgage lenders are willing to charge lower rates for loans that are backed by Fannie or Freddie; with a lower conforming loan limit, a small number of loans that used to qualify for federal backing no longer do. As a result, homes that are now on the wrong side of the conforming loan limit will see fewer potential buyers and lower sales prices. This will matter more in California, New York, and other high-cost areas.

This week’s big news was the plan to expand refinancing eligibility. I’m devoting this week’s post to explaining which problems this plan will and won’t solve, and which other policies being kicked around might solve the problems that easier refinancing won’t. But first, a quick look at the latest home price numbers.

Home Prices Up and Down Depending on Where You Live
Two different home price indexes reported this week that prices have fallen nationally about 4% this year up to August 2011. But prices were relatively stable over the last three months after slipping earlier this year, with Case-Shiller reporting a -0.3% drop and the Federal Housing Finance Agency (FHFA) reporting a +0.6% bump. Nationally, this is a sign that prices might finally be leveling out, which could be the cue that everyone’s been waiting for – the cue for builders to start planning to build single family homes and for banks and home sellers that it’s time to start putting more of their vacant or distressed properties on the market. As always, location matters: this past summer, prices went up the most in Detroit, followed by Chicago, Washington DC, Minneapolis and Boston. So what’s going on here? Well, Detroit’s price rise is a bounceback from the big price decline during the recession – the largest drop among big metros outside the Sunbelt. The other cities’ price increases were helped by a combinationrelatively low vacancy rates and stable job growth. In Atlanta, where jobs are disappearing, home prices fell most, followed by Phoenix, where there are still a ton of vacant homes. Sellers in those cities hoping to unload will have to wait.

Links:

• Case-Shiller home price index
• FHFA house price index

The Federal Government’s Re-Fi Plan: The Good, The Bad and The Ugly
Now on to politics and policy. The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, announced an expansion in refinancing eligibility through the Home Affordable Refinance Program (HARP). The official notice is here.

So here’s what’s new: some people who are seriously underwater are now eligible to refinance their First: what does it mean for you? You might be able to refinance if your loan-to-value is more than 125% — which used to be the ceiling for eligibility – and you might be able to pay lower fees to refinance. Also, under these new rules, your lender might be more willing to refinance because it makes refinancing less risky for them. BUT, your loan must be owned or guaranteed by mortgages.

First:what does it mean for you? You might be able to refinance if your loan-to-value is more than 125% — which used to be the ceiling for eligibility – and you might be able to pay lower fees to refinance. Also, under these new rules, your lender might be more willing to refinance because it makes refinancing less risky for them. BUT: your loan must be owned or guaranteed by Fannie Mae or Freddie Mac and you need to be current on your mortgage payments, have no late payments in the last six months, and no more than one late payment in the last twelve months. That’s a big “but” and will disqualify many people who want to refinance, but those who do qualify might save a lot. A rough rule-of-thumb is that lowering your mortgage rate by a point will lower your monthly payment by around 10%, but the effect on your payment depends on the details of your loan.

Next:what does it mean for the economy and the housing market? Since borrowers have to be current on their payments to qualify, lots of people on the verge of losing their homeswon’t be helped. And, a lower mortgage rate doesn’t mean a lower loan principal balance right away (even though some borrowers might use the lower rates to shorten their loan and start paying down) – so really underwater borrowers will stay really underwater and still at risk of default and foreclosure. And of course easing refinancing doesn’t help people buy homes because you need to own a home already in order to refinance. So what will this plan do? Stimulate the economy – somewhat. Qualifying borrowers will have lower monthly mortgage payments and therefore more money in their pockets to spend on other things. Who pays for this? Investors in mortgages or mortgage-backed securities – which includes government agencies – who will receive reduced mortgage payments from borrowers. On balance, it’s stimulus because the borrowers will increase their spending more than the investors will decrease theirs. In short, the refinancing expansion is an economic stimulus that avoids the messy politics of trying to get Congress to approve more stimulus plans.

Since the ReFi plan leaves many problems unsolved, debate is brewing on other housing policies. No formal proposals in these areas have come out yet, so treat this as a viewer’s guide to what might be coming next from Washington on housing policy. Grab your beer and chips, and here we go:

1) Principal reductions: The most direct way to prevent future defaults and foreclosures is to reduce mortgage principal balances – in order to get underwater borrowers closer to air. These proposals typically call for the government or whoever the mortgage-holder is to absorb the cost of the reduction. But there’s no free lunch for the borrower.Economist Marty Feldstein proposed that borrowers could have principal reductions in exchange for the lender having “recourse” – which means that a borrower who defaults after a principal reduction could lose not only their house but other assets. Earlier principal reduction proposals called for borrowers who benefited to share any future increases in home value with the government or whoever absorbed the cost of the loan reduction.

2) Renting vacant, foreclosed properties: Bank and government agencies own vacant properties, which aren’t earning them any money – and vacant properties pull down neighboring home values, too. At the same time, as fewer people want to own their own homes, the demand for rentals is rising, leading to lower rental vacancies and sky-high rents. This “plan” aims to kill all birds with one stone, and give owners of vacant properties – or investors who would buy them – incentives to rent them out? Sounds great in theory. Could work in practice if the investors can spruce up these homes and manage them as rentals. The hitch is that lots of the vacant, foreclosed homes are in the outer suburbs (or what you could call, the middle of nowhere), where so much construction during the housing boom took place, but the tight rental markets tend to be in big, dense cities. If we could only figure out how to take a vacant, foreclosed single-family home in Modesto and rent it out as a one-bedroom apartment in San Francisco ….

3) The mortgage interest deduction – just about every economist wants to tackle this, but just about no politician does (can we say, election suicide?). The two hotly debated questions are (1) if the government is going to spend $100 billion annually to support homeownership, is the mortgage interest deduction, as it’s currently designed, the right way to do it? and (2) should the government spend $100 billion annually to help people buy homes in the first place? This is a big, messy question that affects tens of millions of homeowners and all taxpayers. I’ll take this on in a future week.

3) Do we need Fannie Mae and Freddie Mac? – do these institutions help keep mortgage rates low and expand homeownership, or do they deserve blame for the housing mess we’re in? Politicians will ramp up this debate as the housing market moves out of intensive care and can begin to walk on its own with less government support. This, too, I’ll take up in a future week.

Links:

• FHFA announcement about HARP expansions