Case-Shiller’s Next Chiller Chapter
Time travel is the new adventure travel. Yesterday, stocks fell to a level they’d last seen in 1997. Today, we have home prices that nationally have taken us back to 2003.
Here’s the Wall Street Journal sum-up of freshly minted data from the S&P/Case-Shiller home-prices index, which continue their roller-coaster ride downward, careening forward to the past.
The U.S. National Home Price index, which covers all nine U.S. census divisions, fell 18% in the fourth quarter from a year earlier, the largest decline in the measure’s 21-year history.
“There are very few, if any, pockets of turnaround that one can see in the data,” said David M. Blitzer, chairman of S&P’s index committee. “Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and eight of those [areas] now with negative rates exceeding 20%.”
Both composite indexes and 13 of the 20 metropolitan areas have reported consecutive record year-over-year declines since December 2007.
As of December, average home prices are down 27% from their mid-2006 peak. The 10-city and 20-city indexes have fallen every month since August 2006, 29 straight.
Both the 10-city and 20-city indexes fell 19% in 2008. December’s drop marks the 10-city index’s 15th-straight monthly report of a record decline.
The indexes showed prices in 10 major metropolitan areas fell 2.3% from November, while home prices in 20 major metropolitan areas fell 2.5% from November.
What’s more, you don’t have to be buying or selling a home these days to know things in real estate, residential and commercial, are bad. Problem is, issues have surfaced in mortgage and commercial real estate borrowing, but haven’t really begun to rear their ugly heads when it comes to car loans and credit cards.
That’s next.
Meanwhile, pithy commentary and analsysis from those we count on as these events unfold… here’s Calculated Risk’s punch line:
Prices are still falling, and will probably continue to fall for some time.
Here’s some bullet points from Josh Levin, Citigroup’s analysts for home building:
Data Likely Skewed by Foreclosures – Like other home price data, we think Case-Shiller is skewed downward by foreclosures. Case-Shiller includes the sale of bank-owned homes in its calculations. The NAR recently estimated that foreclosed homes currently comprise ~45% of existing home sales. As such, we think that decline in the values of non-foreclosed homes is likely less than the headline decline of ~(18.6%). Towards Equilibrium, Not Free Fall – While today’s report will likely generate negative headlines, we think it is important to bear in mind that home prices are not falling into a bottomless abyss. We think that home prices need to fall another 10%-15% nationwide in order to reach an equilibrium that is not distorted by a credit bubble and instead is a function of fundamental factors such as income and rents. The Sooner, The Better – In our opinion, the sooner home prices reach equilibrium, the better. Reaching equilibrium sooner rather than later will allow (1) potential homebuyers to have some measure of confidence that they are not about to lever up in order to invest in a depreciating asset and (2) investors to have greater confidence in homebuilders’ stated book values since price declines are the largest driver of impairments charges.
The Big Picture’s Barry Ritholtz will weigh in with commentary at some point, but for now, he’s letting the big picture [made smaller here] tell the story.
Click on image for access to The Big Picture post.
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“Data Likely Skewed by Foreclosures – Like other home price data, we think Case-Shiller is skewed downward by foreclosures. Case-Shiller includes the sale of bank-owned homes in its calculations. The NAR recently estimated that foreclosed homes currently comprise ~45% of existing home sales. As such, we think that decline in the values of non-foreclosed homes is likely less than the headline decline of ~(18.6%).”
What you fail to acknowledge – is that no matter if homes are foreclosed or not, they are still a part of the UNSOLD and back-logged inventory. The fact they are usually priced lower has NO bearing in an unprecidented housing recession.
This housing recession was a direct cause of over valued, synthetically inflated home prices through corruption. Sub-prime loans made possible by corrupt institutes Fannie/Freddie-through corrupt politicians, corrupt mortgage brokers, corrupt bankers, appraisers, real estate agents and corrupt traders of MBS’s.
The simpliest measure to see the massive imbalance in home prices nationwide was examining the 74% increase in homes from 2000 to 2005 versus the 15% increase in wages during the same time frame. Then compare rents and then you can readily see that housing values were completely unsupportable and unrealistic!
History of mostly consistent data is the single best metric in statistics – yet it was and is ignored when it comes to housing. a 4% to 5% per year appreciation increase is normal AND supportable, but 15%!? per year…no, not by a long shot.
You seem to be attempting to paint a rosier picture- that does not exist and skate around the real issue of over valuation in relation to salaries and wages. When rampant job loss takes center stage, everything else stalls. It is one of the basic tenets of economics. Loss of or reduced or purchasing power = much less or no demand at all.
Little or no demand simply means greater supplies-what? Did you guys forget econ 101?
Come on. You’re killing me. Of course there are many intricate factors that effect markets and localized housing markets all react differently, but we are in a mild depression- all bets are off.