Tuesday, January 26, 2010

Case-Shiller Index Improves for 10th Month

"Data through November 2009, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual rates of decline of the 10-City and 20-City Composites continue to improve, in spite of price declines being measured across many markets during November. This marks 10 straight months of improved readings in the annual statistics, beginning in early 2009, and is the third consecutive month these statistics have registered single digit declines, after 20 consecutive months of double digit declines.

The chart above depicts the annual returns of the 10-City and 20-City Composite Home Price Indices, declining 4.5% and 5.3%, respectively, in November compared to the same month last year. All 20 metro areas and both Composites showed an improvement in the annual rates of decline with November’s readings compared to October."


At 1/26/2010 10:33 AM, Blogger brodero said...

Case Shiller is 22% above stress test assumptions....

At 1/26/2010 10:41 AM, Blogger Unknown said...

And by 'improves' you mean 'got worse more slowly'.

At 1/26/2010 11:08 AM, Anonymous Anonymous said...

For all intents and purposes, the United States home mortgage market has been nationalized without anybody noticing. Last September, reportedly over 95% of all new loans for single-family homes in the U.S. were made with federal assistance, either through Fannie Mae and the implied guarantee, or Freddie Mac, or through the FHA.

... If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe, because private lenders for single-family homes are nervous.

Why am I so certain that the federal government will have to cut back on its lending? Because most of the financing is done via the bond market ... And the numbers are so big that eventually the bond market is going to gag on the government-sponsored paper.

The public doesn't have any idea of the scale of the guarantees the government is taking on through Fannie, Freddie, and FHA. It's huge. If people understood what the federal government has done and subjected the taxpayers to, there would be a public outrage.

... anyone who's comforted by current statistics on single-family homes should look beyond the data and into the dynamics of the market. What they'll find is very alarming.


At 1/26/2010 11:13 AM, Anonymous gettingrational said...

Carpe Diem
"Case-Shiller Index Improves for 10th Month"

"Housing Prices Drop As Recovery in Market Still Shaky"

"Home Prices in 20 U.S. Cities Rise A Sixth Month, Case Shiller Index Shows"

Yahoo Finance
"Home Prices Dip In November: S&P/Case-Shiller Shows"

"U.S. Home Prices Slip Again"

MSN MoneyCentral
"Home Prices Slip In November: But the year-to-year decline is smallest in 2 years"

These are headlines for the same Case-Shiller Index Release. We live in a huge diversified economy so individual results may vary!

At 1/26/2010 11:27 AM, Anonymous Verie said...

Yes, Brodero C-S far exceed the stress test scenario. Yes Bill home process are just getting worse more slowly.

The real reason for concern lies beneath the paper-thin veneer of statistics we see flashed around as "proof" of some sort of recovery.

House prices are turning the corner because

1. They couldn't fall any further. This is the dead cat bounce.
2. The Home Buyers Tax Credit which provides an incentive to buy now.
3. Fed purchases of MBS which are keeping mortgage rates near historic lows.
4. QE by the Fed which has driven yields to nearly zero, causing the sam "search for yield" which created the last housing bubble.
5. FHA loans which make up more than 40% of home sales and are 96.5% leveraged.

You are seeing the impact of incredibly good bargains. The rent vs. buy decision has rarely been better. But note that 4 of the 5 reasons people are snapping up houses are from GOVERNMENT distortions to free market decisions. This is NOT a market repairing itself, at least not much.

About 30% of home sales are to speculators scooping up foreclosures, fixing them with lipstick, and flipping them. This might be good for buyers who want to buy a house that looks nice but has bad bones in a bad neighborhood. But overall flipping wasn't good for the market before and it's not good now. It's "time arbitrage" which transfers wealth from long term home owners to cash rich speculators.

There is a coming wave of foreclosures from underwater Alt-A and Option ARMs. You'll see the foreclosure rate level off a little and then spike again for nearly TWO YEARS.

California had zero or negative house price growth for FOUR CONSECUTIVE YEARS in the early 90s. This is what you should expect to see again in several states.

The ratio of new home sales to existing home sales has never been lower. The Architectural Billings Index has been contracting for over two years. The is no national construction recovery on the horizon.

Funny, but the chart doesn't show all that. Charts seldom do tell you "the rest of the story."

At 1/26/2010 12:48 PM, Blogger Bill said...

Verie: A lack of new home construction is good for existing home prices as less new inventory tends to drive buyers to existing housing stock thereby raising prices.

At 1/26/2010 2:04 PM, Blogger juandos said...

From the Business Insider: Case-Shiller: Still Disappointing For Housing Bulls, As 15 Of 20 Markets Fall Sequentially

15 of the 20 markets they track fell sequentially on a nominal basis.

On a seasonally adjusted basis, 14 of the 20 markets improved.

On a year-over-year basis, home prices fell 5.4%, which is worse than the 5% analysts were expecting

At 1/26/2010 3:02 PM, Anonymous Poirot said...

Yay! House prices are back up to 2003 levels!

Houses bought between 3Q05 and 1Q07 are only worth 25% less than their purchase prices!

At 1/26/2010 3:12 PM, Anonymous Verie said...

Yes, Bill, little new construction is good for existing home prices but it doesn't help theconstruction sector much at all.

Residential investment is the key to economic recovery. With none of that in sight, this will be a long, slow recovery.

Building permits are currently well-below 1980 levels in the US despite population growth since that time. We have to exhaust not only the existing excess supply of homes plus the small number of new homes but also the shadow inventory of homes waiting to hit the market from foreclosures and delayed sales. Prices will remain low for some time.

Graph the Case Shiller Composite 20 HPI from 2007 to the present. It's not a V. It's a hockey stick. It will turn into an L by the middle of this year.

At 1/26/2010 4:55 PM, Blogger Bill said...

I hear a lot about the "shadow inventory" but does anyone have any actual proof that it exists? How about a study or government figures of something? If not, this shadowy potential problem should be discounted.

At 1/26/2010 8:11 PM, Anonymous Verie said...

There's lots of proof the shadow inventory exists, Bill, but you won't find it here.

It's called "shadow" for a reason - because it's not visible in MLS which is where all your sales and inventory figures come from. It consists partially of homes which were foreclosed on but not yet sold by banks - that can be counted. It includes loans more than 90 days delinquent but haven't been foreclosed yet. It includes auction sales and auction failures which are not on MLS.

Seek and ye shall find.

At 1/26/2010 9:01 PM, Anonymous Gistedl said...

Discussing monthly house price changes conjures the image of an inmate in prison for a five-year sentence, carving tally marks on the wall for each passing day.

Carpe Diem is anxiously awaiting the parole hearing.

At 1/26/2010 10:27 PM, Blogger PeakTrader said...

Anon, I agree "if people understood what the federal government has done...there would be a public outrage."

1. Wall Street forced U.S. corporations to become more efficient resulting in a record 20 consecutive quarters of double-digit U.S. earning growth in the 2000s.

2. U.S. banks distributed trillions of dollars to the masses fueling a home building boom, and related goods, which helped raise actual output towards potential output.

3. U.S. GDP growth and the U.S. current account deficit show U.S. living standards rose at a faster rate in 2002-07 than in 1995-00.

4. Export-led economies buying Treasury bonds, U.S. restrictive monetary policy, and contractionary fiscal policy drained dollars out of the U.S. private sector creating a recession.

5. Rather than government "refunding" dollars back to households and banks, it spent them. Moreover, government will make "profits" through taxes and bank "bailouts."

6. So, we can expect weak economic growth, a peak in economic efficiency (in 2007), goods and capital destruction, and lower income workers suffering the most through higher taxes, interest rates, inflation.

At 1/26/2010 11:39 PM, Blogger Bill said...

"There's lots of proof the shadow inventory exists, Bill, but you won't find it here...

Seek and ye shall find."

verie: But I asked you to produce the evidence since you were the one making the "shadow inventory" argument. Put up or shut up.

At 1/27/2010 12:50 AM, Anonymous Verie said...

Bill, do I have to do all your homework for you?

I gave you all the answers. I explained that there is a WIDE discrepancy between the number of homes on the market and the number of homes which have been foreclosed or are seriously delinquent in their mortgages. This data is easy to find. You can read every week about rising delinquency and foreclosure rates.

You could have googled "shadow inventory" yourself to find one of DOZENS of reputable sources that will give you more information than I can squeeze into this text box. And had I thrown out numbers here, you would have rejected them out of hand.

The problem is that you are LAZY and STUPID. You don't want to have your ignorant pre-conceived notions challenged. The entire banking and real estate profession is on top of the shadow inventory problem. It's old news and serious news, but you missed the boat. Denial doesn't make it go away. True analysis involves looking a little deeper than the story told by superficial data.

Here's a comprehensive explanation of what the shadow inventory is:


And, if you can understand it, here is a detailed empirical and theoretical study on the size of the shadow inventory in several markets taking into account REOs alone (not including people who WANT or NEED to sell but are waiting for a better time):


From here on out you can Google your own information. Class dismissed!

At 1/27/2010 9:08 AM, Anonymous Anonymous said...


Thanks a lot for that scribd link. I'd been looking for something that precisely described the problem and was empirically sound. Thanks, professor. ;)

At 1/27/2010 11:09 AM, Blogger Bill said...

verie: I am not sure from where all of your unjustified self-confidence arises but I suspect it may have something to do with a narcissistic personality disorder. This trait, when combined with a general pessimistic outlook, results in your odd posts.

In any event, I did not mean to say that I did not know what the "shadow inventory" concept is. What I meant was that it does not appear to be affecting the real estate recovery in a substantial way. Looking at the actual data of sales of homes and homes listed, we see that sales have generally been rising while the supply of homes for sale has been generally declining for about a year. This has all been occurring while large numbers of foreclosed homes have also been entering the market (part of the dreaded "shadow inventory").

So, my central point is that this additional inventory should not cause problems for the larger real estate recovery and nothing you have posted disproves this. But, time will tell. Let's revisit this in about 12 months.

At 1/27/2010 12:59 PM, Anonymous Verie said...

Bill, my justified self confidence comes from having a PhD in Economics and analysing the housing market on a continuing basis. This isn't a hobby - I paid get hundreds of thousands of dollars to do this. Who pays you to deny the existence of economic realities?

You stated explicitly that you REFUSE to recognize the existence of the "shadow inventory" until you see evidence. Now you follow up by saying you don't see evidence from the housing numbers. This, I've already explained to you. I'll repeat it again, typing more slowly:

1. It's called a "shadow" inventory because it is NOT CAPTURED BY MLS DATA. All of the home sales and inventory statistics upon which you are judging the market rebound are based on MLS data. The shadow inventory consists of homes that:

a. Are in defualt but not yet foreclosed on.
b. Have been foreclosed on but not yet sold
c. Owners WANT or NEED to sell, but can't or won't until market conditions improve (I.e. Latent supply)
d. Are sold (or failed to sell) at auction

Your data misses all this and so it improperlyshows "recovery".

The second problem with your understanding is that the shadow inventory is a PORTENT of things to come soon, not the frolicking jig danced by people who think housing markets are in recovery.

Take a look at rising foreclosure and delinquency rates ACROSS THE COUNTRY. Take a look at the swell of Option ARMs and Alt-A loans which will recast in the next two years. You say in your "central point" that these are not affecting the market. The shadow inventory IS NOT ON THE MARKET. It will be. That's what the fuss is about.

While some people are focused on market ticks, the good economists are looking down the road at the next six months, year, and five years. We don't necessarily drink all the Kool Aid of the quants, but we know from experience and economic theory what happens tomorrow when certain things happen today.

We are seeing the SAME market conditions that led to the financial and housing crisis being revisited. We are seeing the delayed effects of the housing crisis coming down the tracks toward us.

I'm not a doomsayer. I'm bullish on the US economy for the 20 years until I retire. I'm on the market to buy a house in the best conditions I'll likely EVER see. But this is not a recovery. High sales volumes at cut-rate prices is a sign of economic DESTRUCTION. Think of Hiroshima. Think of New Orleans. Then you'll have a proper picture of the economic environment we're in. Those of us with money are having a great time. Those who have suffered and will CONTINUE TO SUFFER from unemployment, foreclosures, bank failures, and stock losses are not sharing your cheer.

Tax subsidies
MBS purchases
FHA loans
Stimulus spending
Quantitative easing

The bill for all this government spending comes later.

At 1/27/2010 1:31 PM, Blogger Bill said...

verie: Again, I understand your argument but I just find it flawed and overly pessimistic. And, I am hardly willfully ignorant of the disastrous conditions in the larger economy. But, I also recognize the early signs of recovery and I do not see evidence that a real estate recession which started in mid-2006 will continue indefinitely. This is not the way the markets tend to behave.

So, you can latch on to any piece of negative information you can find and improperly assume that the market conditions of the past 3 1/2 years will continue forever if you wish. To my ears though, you sound very similar to the real estate apologists in mid-2006 who argued that real estate values could never go down. In any event, I suppose that we will have to agree to disagree

And, congratulations on your education attainments and income level. By the way, I also have an advanced degree and make hundreds of thousands a year. But, by stating this, I would be employing the logical fallacy of an appeal to credentials and I try to avoid such things. Have a good day and stay positive.

At 2/01/2010 3:13 PM, Anonymous Verie said...


You ASKED me what justifies my self-confidence and I told you; it was not idle boasting. Alex Rodriguez isn't boasting when he tells answers the question of why he thinks he know something about baseball!

Your inferences are warped. My way of thinking sounds NOTHING like the people who say house prices would rise forever. In fact, it is your certainty that these nascent positive signs signify a recovery which are reminiscent of that panglossian outlook.

I lived through the California real estate malaise of the early 1990's. That experience is in sharp contrast to the people who, only a few years later, said "California real estate prices never go down." Myopia and amnesia is a common trait of optimists.

I am neither an optimist or a pessimist. I have identified the rise in sales and correctly attributed it to low price, low interest rates, a tax credit, FHA loans, and speculation. Rising prices are the result of that increase in demand. This is more the result of government actions than market recovery! By no means are rises permanent. House prices came up for air many times in California in the afforementioned crisis. And short-sighted people like you touted "recovery" every time.

I would like to believe we are in a recovery, but wishful thinking doesn't make it so. Hope is not an economic resource.

Good day sir. I hope for all our sakes you are right.


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