No End in Sight to the Housing Bust 21 comments
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The done thing when the Case-Shiller index comes out is to look first at the first derivative — how fast is it falling? Then people look at the second derivative — is the rate of decrease slowing down or speeding up? And if there’s no optimism there, you can always find it somewhere. The official press release leads with a graph of the first derivative over time, and then adds this:
This is the second month since October 2007 where the 10- and 20-City Composites did not post a record annual decline. Based on the March data, however, we see no evidence that that a recovery in home prices has begun.
I don’t think we needed an index to tell us that. But it is worth taking a step back and looking at the level of the index, rather than just its rate of change:
This is the Composite-10 index; the National and Composite-20 indices are similar, and in general show house prices at their levels from 6-7 years ago; all the same, the length and severity of the drop in house prices is still just a fraction of what we saw on the way up: we had a ten-year boom from 1997 to 2007, and there’s no particular reason why the bust shouldn’t last just as long — especially given the natural stickiness of house prices on the way down.
And what of stories announcing a “new frenzy” of house-buying in Phoenix, poster-city for the housing bubble? I think this could be a sign of a real two-way market developing, with the number of buyers approaching the number of sellers. That’s good for price transparency, but it doesn’t tell us anything about the future direction of house prices: liquid markets can fall just as easily as they can rise. And, in this case, probably will.
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On the flip side it deosn't reflect what perhaps the true drop in certain markets either becasue it is an average not drilling down on specific sales. Becausee of the issues with the data inputs above it doesn't reflect for example the home purchased for $1.5 now selling for $750K.
The case schiller is not a good measure of the reale state market from so many perspectives....for as a measure it doesn't reflect true markets...it's too opeque.
On May 26 10:58 AM Fighting Yoda wrote:
> The data still suggests no end in sight – a 2% month on month fall
> is historic. Housing is directly related to jobs, jobs are unlikely
> to recover till middle of 2011 – so no turn around till then at least.
> So a long fall still ahead – likely another 20% more, the second
> derivative should start tapering at some point.
>
> And why is sentiment up? People finding jobs? Buying or selling
> homes?
On May 26 10:58 AM Fighting Yoda wrote:
> The data still suggests no end in sight – a 2% month on month fall
> is historic. Housing is directly related to jobs, jobs are unlikely
> to recover till middle of 2011 – so no turn around till then at least.
> So a long fall still ahead – likely another 20% more, the second
> derivative should start tapering at some point.
>
> And why is sentiment up? People finding jobs? Buying or selling
> homes?
Unless the focus is taken off this concept and put directly onto job creation. Unemployment and housing will continue to fall.
On May 26 12:55 PM conceptwizard wrote:
> What makes today’s Bubble different from previous ones is that instead
> of being organized by governments as a stratagem to dispose of their
> public debt by creating or privatizing monopolies to sell off for
> payment in government bonds, the United States and other nations
> today are going deeply into debt simply to pay bankers for bad loans.
> The economy is being sacrificed to reward finance instead of remaining
> viable by subordinating and channeling finance to promote economic
> growth via an affordable economy-wide cost structure. Interest-bearing
> debt weighs down the economy, causing debt deflation by diverting
> saving into debt payments instead of capital investment. Under this
> condition “saving” is not the solution to today’s economic shrinkage;
> it is part of the problem. In contrast to the personal hoarding of
> Keynes’s day, the problem is that the financial sector is now using
> its extractive power as creditor instead of wiping out the economy’s
> bad-debt overhang in the historically normal way, by a wave of bankruptcies.
>
>
> Unless the focus is taken off this concept and put directly onto
> job creation. Unemployment and housing will continue to fall.
You're right, it is not a measure of how many houses are being kept off the market. It also does not measure "price changes" for new construction, as by definition there was no previous price and therefore no price change.
However, you are wrong about distressed sales. As long as the sale occurred on an arms length basis, it is included.
The good thing about this index is it does drill down on every sale, creating sales-pairs and then calculates an average. In your example of a house purchased for $1.5 million it not clear if you mean the sale has happened. If it is "now selling" and still on the market, it's not counted as only closings are counted. However, if you mean the sale has closed at $750,000, it certainly is included. If the purchase for $1.5 was one year ago, it would go into the calculation as a decline of 50%.
You should go back and study this index in more detail.
Inflation and "Return of the Housing Bubble" seem inevitable.
PS For some reason positive commentary on real estate seems to attract a lot of negative feed back from readers
On May 26 03:24 PM Ed Hynes wrote:
> I personally think the S&P Case-Shiller index is pretty good.
> It may not measure what you think is important, but what it measures,
> it appears to do it well.
>
> You're right, it is not a measure of how many houses are being kept
> off the market. It also does not measure "price changes" for new
> construction, as by definition there was no previous price and therefore
> no price change.
>
> However, you are wrong about distressed sales. As long as the sale
> occurred on an arms length basis, it is included.
>
> The good thing about this index is it does drill down on every sale,
> creating sales-pairs and then calculates an average. In your example
> of a house purchased for $1.5 million it not clear if you mean the
> sale has happened. If it is "now selling" and still on the market,
> it's not counted as only closings are counted. However, if you mean
> the sale has closed at $750,000, it certainly is included. If the
> purchase for $1.5 was one year ago, it would go into the calculation
> as a decline of 50%.
>
> You should go back and study this index in more detail.
In addition to what you mention, a third reason to watch the housing market is because our financial system will have trouble stabilizing until housing stabilizes.
Cheers, Ed
As I am sure you know it's important not to get year-over-year and month to month results mixed up. The 19.1% drop for the national index is year over year, while the city numbers you quote are month over month in S&P terms. Actually they compare the three months ending in March with the three months ending in Feb.
Prices are not back to 2000 levels. Depending on the index, prices are back to late 2002 - mid 2003, which is still terrible.
The problem is spreading for the west and south. However, the good news is San Diego and LA are all starting to show some real improvements. After showing year over year declines of around 28-29% six months ago, year over year declines are now around 22%.
Cheers
On May 26 11:55 PM twaite90 wrote:
> I do not know how the data get collected. I do not think the author
> did his home work, maybe never. I know in CA right now, if you do
> not offer above listing price for a house that prices below 500K
> and in the relative good condition, you are dreaming to get that
> house. The same is true in phoenix in the price range from 150K to
> 200K. If you do not believe, ask a real estate agent. BTW, please
> do not get into betting war.
On May 27 12:44 AM Sanjeev Sharma wrote:
> the march month of case shiller also reflects the consumer sentiment
> of that month (Dow below 7000..), the data of May and June which
> would come a few months later should reflect better consumer sentiment
> (which gets reflected in Dow being above 8500).
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