Four Important Housing Charts

Professor Shiller himself (with the ideas of supply and demand conspicuously absent from his analysis) said in June that housing price declines "may well continue for some time." Housing price data released Tuesday seem to further contradict his prediction.

When he said that, he had six months more data than I did in December when I said (based on supply and demand) that housing would turn around "summer 2009."

The chart below shows his index as a ratio to construction prices, together with the volume of construction activity (I am not sure about the most recent month's breakdown between tenant and owner occupied ... still working on that). I'll let you decide whether (as of June), the housing market was still in free fall.

Click to enlarge:

This next chart shows the OFHEO housing price index through June: it showed a turn-around even earlier than Case-Shiller did and continues to confirm that view.

Click to enlarge:



This next chart is from Sean MacLeod. (Thank you sir! He sent it before the June OFHEO was released). It compares 4 different indices. When I turn back to revising my paper about housing prices and construction, I will learn about the RPX index, but for now all I know is that Sean MacLeod makes a good case that it should be considered.

Click to enlarge:


Finally, the BEA has a quarterly index of the price of new "residential structures" (that is, housing!). The chart below shows that index together with quarterly averages of C-S and OFHEO through 2009 Q2.

Click to enlarge:

Comments

[Tony Petroski:]

Mr. Mulligan.

"The chart below shows his index as a ratio to construction prices, together with the volume of construction activity (I am not sure about the most recent month's breakdown between tenant and owner occupied ... still working on that). I'll let you decide whether (as of June), the housing market was still in free fall."

A vacation on Martha's Vinyard is just what you need.

Aug 25 06:51 PM

[conceptwizard:]

Yep theres a housing turnaround. I might as well give in, and get on board the "reen shoot torpedo" to wherevr its going.

Does anyne stop to look at the charts of all the Alt A resets, the HELOC, the secon lien? We are only a few months in so far. There are deliiquncies skyrocketing in every area inlcuding Prime mortgages.

Realtytrac has stated that there are descrepancies between there forecoures numbers and what are on the market for sale in the 100,000 of thousands.
We are set to have forecloures until 2011/2012 peaking sometime in 2010.
We are in a depression, pure and simple.

Aug 25 07:14 PM

[Jiang Nan:]

Congratulation Obama and Bernanke, the stimulus and low interest rate does it.

At least to the house prices and stocks.

Lets enjoy while the stimulus last.

Aug 25 07:30 PM

[johngonole:]

Things usually don't go straight up or down. To early to call a small turn up a trend. CNBC, financial media in general are always biased on the positive side of things. For about two months now all I hear is that things are turning around. But it only seems to be turning around in the paper markets. Real demand for all kinds of goods and services is down. Unemployment is still rising.

Aug 26 12:56 AM

[Jasper M:]

Considering that the Cause of the decline in housing (a decades long credit inflation) is still in place (albeit on its very last legs), I wonder how any snapshot of the present, however rosy, can be predictive of indefinite improvement - the same sort of collapse that 'snuck up on' the world over the last two years can (and, really, must) happen again.

Aug 26 01:48 AM

[Phaneendar ...:]

Rising unemployement, falling consumption, imminent corporate and consumer credit defaults.....will housing recover???

Aug 26 02:32 AM

[Michael Clark:]

That's THE important issue. We had a housing BOOM because the banks (with government pressure to do so) loaned money to those who were not qualified to borrow. Without this, we would not have had a BOOM. We would have had housing appreciation of 1-2% a year -- and we would have had no depression.

Now, wages, salaries, and total jobs are declining. People can afford less. The Fed is holding down rates artificially so that housing prices won't come down. People with less money cannot afford to buy expensive houses -- unless the banks want to make bad loans again.

Isn't this clear to people who are calling a housing bottom.

Denial: the first stage of the Death process. And we are still in denial.

Ok, we've been through the correction. Sorry. More correction to come.


On Aug 25 08:39 PM Lawrence G McDonald wrote:

> The one serious issue I cannot ignore is this. American debt is out
> of control, which is why prime mortgage foreclosures are rising.
> This housing market has not bottomed. But it will in the New Year.
> The first step is the jobs. With 10% unemployment, housing cannot
> improve.

Aug 26 02:51 AM

[manya05:]

You can keep looking at numbers and statistics, or you can look at reality. Reality indicates that we are in the middle of a massive generational change, in which baby boomers will retire en masse and pass the torch to a smaller and more heavily taxed generation. The process will unfold over many years, not just one summer or one year. This process calls for a lot of downsizing. There is going to be a monumental glut of suburban McMansions for decades to come, and a great need for smaller homes closer to town and with better access to public transportation. We will see a lot of changes in the real estate market, I think for the better.

Aug 26 03:19 AM

[Donald Ingram:]

Bottom line is - housing will still come down in value along with commercial real estate. The RE supply side will remain fat for years to come. Billions more (if not over a trillion) dollars to wash through the system yet. It will be years before any semblance of normalcy returns to the real estate market.

Aug 26 03:24 AM

[Michael Clark:]

Agreed. The generation change is, in fact, a tidal shift. With no work in America, we also won't have the flood of illegal immigrants looking to better their life. With Americans fighting for every job, illegal immigrants won't be appreciated (intolerance of outsiders is another element of contraction, and a new nativism, that comes out of protectionism -- and this makes me shudder a bit). Almost everyone I know has a family member who has downsized. I'm surprised Macdonalds hasn't come up with a 'downsize it' meal, for those on a budget or those with a weight problem.

Come to think of it, it might be an interesting historical study to compare rates of obesity with periods of expansion of debt.


On Aug 26 03:19 AM manya05 wrote:

> You can keep looking at numbers and statistics, or you can look at
> reality. Reality indicates that we are in the middle of a massive
> generational change, in which baby boomers will retire en masse and
> pass the torch to a smaller and more heavily taxed generation. The
> process will unfold over many years, not just one summer or one year.
> This process calls for a lot of downsizing. There is going to be
> a monumental glut of suburban McMansions for decades to come, and
> a great need for smaller homes closer to town and with better access
> to public transportation. We will see a lot of changes in the real
> estate market, I think for the better.

Aug 26 03:32 AM

[Michael Clark:]

A personal anecdote: My sister-in-law in Portland, Oregon bought her house in 1988 for $71,000. This was a modest three-bedroom house in a modest part of Portland. She and her husband had just emigrated from Vietnam; both she and her husband were working jobs starting at close to minimum wage. She had $3000 in savings and borrowed another $4000 from her mother to secure a 10% down-payment. In 2007, this house was valued at $700,000. In 2008, Portland housing declined about 10%. A house that has increased in value from $71,000 in 1988 to $630,000 in 2008 has increased 787% in twenty years. A couple making $30,000 in 1988 should be making $236,100 in 2008 in order to keep up with the suggested rate of housing inflation. Obviously my relatives don't make $236,100....so they could not afford their own house today if they were starting out. And this modest home was a 'starting-out' kind of home.

Historical (pre-bubble) housing price gains averaged about 2.5% per year. If this is assumed for my sister-in-law's house, her $71,000 house bought in 1978 should be worth approximately $107,000 now. Portland housing has lost about 17%. If this is applied to my sister-in-law's house, instead of $700,000, it is now worth about $574,000. This is some $400,000 over the normal historical returns we would assume, had we not been Greenspanned by the housing bubble. If we assume that housing prices needed to return to historical norms for this bubble to be overcome, my sister-in-law's house would still need to shed 73% of its current value.

I guess I don't see how my sister-in-law's house has reached a bottom, especially considering that wages and salaries are on a descending arc.

I don't think I'd trust the cheerleaders until real sanity came back into our markets and into the words of our political leaders.

Aug 26 03:33 AM

[lower98th:]

I did a brief, geographically restricted, sample of actual single family homes in central Florida that were sold in 2005/6, where the same house was also sold in 2009.
The 2009 purchase price of these resold homes is 42.12% of the prior selling price.
For condos (also very restricted), resales were for 35% of the prior sale at the peak.

Aug 26 07:40 AM

[bbro:]

Unemployment is not rising,consumption is flat,corporate and comsumer defaults are priced in....


On Aug 26 02:32 AM Phaneendar Bhavaraju wrote:

> Rising unemployement, falling consumption, imminent corporate and
> consumer credit defaults.....will housing recover???

Aug 26 08:05 AM

[Ramags:]

IN Phoenix we have had some "good sale number months!"
Ya, you can buy a once $250,000 house for 100K or less thanks to the Banks REO repricing and rent it out for 800-1000/ mo.
To a investor with hard cash, "a hellva deal" BUT the next round of foreclosures, the 700k (Alt-A's) how will they sell??
Will investors buy a once 700K house for $350K and rent it out for $800.mo?
Don't think so! And the Rental Market right now is under "A LOT" of pressure. We're running out of people with monthly incomes who can only afford to pay what their part time job (or unemployment ) allows!

Aug 26 09:41 AM

[Mr. Ed, Jr.:]

So, a summer (home-buying season) rally, coinciding with slightly increased demand due to the November expiration of the $8k tax credit is suddenly a housing turnaround ?

Has anyone bothered to check the NOD's filed in the last few months ? RealtyTrac says 600,000 homes are being held off the market by banks, in order to not do more pricing damage.

Good luck sustaining this slight uptick with a glut of foreclosures on the way and high unemployment.

But perhaps we really have created a new paradigm...one that is able to overcome high unemployment and all known aspects of the economic law of supply and demand.

Aug 26 11:34 AM

[rockerchic:]

Ah, yes... just like the govt. stealing billions of taxpayers (hey, no one asked me if they could do this!) to give to new car buyers. And Wall Street rallys at the green shoot. And GDP moves up. Another Obama miracle! So the new paradigm is simply this: stealing/borrowing = economic recovery. Hey, if we all rob the corner liquor stores in our neighborhoods, then we'll solve this economic mess once and for all. Consumer confidence will sky rocket and we'll all spend again. A least for a few months. Then.... well let's not go there. No one worries about 'then', that isn't politically correct to talk about.


On Aug 26 11:34 AM Mr. Ed, Jr. wrote:

> So, a summer (home-buying season) rally, coinciding with slightly
> increased demand due to the November expiration of the $8k tax credit
> is suddenly a housing turnaround ?
>
> Has anyone bothered to check the NOD's filed in the last few months
> ? RealtyTrac says 600,000 homes are being held off the market by
> banks, in order to not do more pricing damage.
>
> Good luck sustaining this slight uptick with a glut of foreclosures
> on the way and high unemployment.
>
> But perhaps we really have created a new paradigm...one that is able
> to overcome high unemployment and all known aspects of the economic
> law of supply and demand.

Aug 26 03:03 PM

[Russ Wetherill:]

That's the problem! I've been looking at the wrong charts! Up is down, in is out, and wrong is right! It's so clear now, how could I have missed it!

Unemployment does not matter. Mortgage availability is immaterial. 4% Foreclosures? 10% Delinquencies? Who cares! The fix is in, and charts don't lie (so long as you refrain from reading them).

Aug 26 04:27 PM