Case-Shiller's Recent Strength: It's Not Just Seasonality 31 comments
Tom Brown
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For months now, housing skeptics have told us that recent signs of stabilization in home prices—as seen in, for instance, a flattening in the Case-Shiller home price index for most of this year—is a result of mere “seasonality” rather than any real strength in the market. Prices tend to go up during the spring versus the winter, as the weather warms up, and then rise some more during the summer as families move while the kids are out of school. Take out that seasonal influence, the bears say, and home prices are still headed down, down, down. Or not. The release of the July Case-Shiller numbers, out this morning, makes a bit of a hash of the bears’ argument. From 2000 through 2008, the change in the month-on-month change in the index (that is, the second-derivative of monthly change) has averaged minus-19 bps from June to July, and was only up once, in 2003. Which is to say, sequential monthly improvement in the index usually deteriorates seasonally in July. This month, though, the change in the rate of change rose by 18 bps. So instead of a seasonally monthly slowing, we’re seeing month-on-month acceleration.
As far as that goes, the seasonally adjusted version of the index shows that prices do indeed seem to be stabilizing:
The evidence is growing that the long slide in home prices is at last coming to an end. For months, skeptics have dismissed recent price strength as merely the product of the calendar. Now, it seems, they’ll have to dismiss it all some other way. | ||||||||||||||||||||||||||||
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This article has 31 comments:
Housing Numbers - Government Help = Zero
If you can make the case that the US government can be the defacto lender for all housing here in the US, that the the preponderance of these loans will bad, and that fiscal deficits do not matter, and we can sustain what we're doing here forever, then by all means the Bulls will have their day.
If you believe the laws of physics still apply here on Earth then there are basically two future scenarios for the USA:
1. The Government slowly (and soon, before the dollar crumbles) pulls the plug on all of the stimulus and we experience slight negative growth dampened activity for the next ten years or so. Our country operates basically like Japan and to some extent Germany have for the last decade.
2. The Government keeps it petal-to-the-metal and until we just crash and burn. The dollar crumbles, inflation goes berserk, interest rates go to 25% and we default on our debt (or just inflate it away, which is the same thing). Then a screwed China goes nuclear (literally) and our boys go attack North Korea and Iran and go defend Taiwan, Columbia and Japan and our government gets us into WWIII since that was the only way out of the last mess like this.
God help us if our scenario is NOT #2.
OP
God help us if our scenario is NOT #1.
I have to say that having the Government in the system is causing problems. Here's why: with the Government safety net banks don't have to lend to make money.
The banks are having an absolute hay-day. They have do downside risk (b/c they are selling the FHA loans to the government) with limited downside risk. This is so appealing and they are making so much money (getting money at effectively zero) that there is no need to be competitive and seek out business opportunity (e.g. JUMBOs) or support small business loans.
This is what one might call "unintended consequence" of government safety net in the banking system- it's not lending itself to more lending but, rather, less.
To support his presumptions the author completely ignores contributing causes C, D, E, and F (artificially low interest rates, $8k buyer credit, change in sales mix (distressed/non-distre... foreclosure moratoriums, etc.) as noted by above commentators.
These types of specious arguments may fly with the general public but they certainly don't pass muster here.
Tom,
Didn't you call the bottom to the banking problems in the late fall of 2007 at the Value Investing Conference ?
When you intentionally disregard the ending of the tax credit (sale must be closed prior to the November deadline), and which can be used as the downpayment with FHA financing, AND which polling shows at least 15% of ALL buyers (not just those who are eligible) said they would not have bought now without the credit.....well, I think we know who and what to dismiss.
I have a leading indicator on this one. I got a pal in Charlotte NC home to BAC. When he unloads his manse is when the market clears bottom. Till then the top end and the middle end of the R/E market still needs a hair cut. I'm ceratain like most top end sellers stuck upside down and strapped to their land, if he'd just take another 10-15% off the ask, he'd be free and clear. But he can't w/o getting wiped out...so he waits. We wait. Extend. Pretend. Till the forclosure gets served. Till the auction volume pics up and the news stories abound with the woes of the upper middle class who used to be rich last sunday, now out on their arse.
That will be the day R/E hits a bottom.
If the banks continue their foreclosures or if interest rates rise, the housing market will come crashing down in flames again. We have too many houses, the problem will solve itself over time, when population grows and more households are created. I don't think we had substantial population growth and household formation in the last few months, unless a lot of 13 year olds decided to create families.
Median house price: ~$200k
$8K credit to 1st time buyers = 4%
I don't see how this is "hashing the bears' argument." This is just more artificial propping of house prices.
Offer $16k credits and watch even more housing growth happen!
;)
One of the reasons housing has been so stagnant is that, with so many foreclosures, sales do not create that needed ripple effect, as there is just an empty house being sold by the bank. Foreclosure supply has done much damage to the "ripple".
First time buyers typically are a little more than 1/3 of the market, I believe, but I do not have more precise numbers available for this summer.
On Sep 29 05:57 PM Stone Fox Capital wrote:
> Seriously doubt first time home buyers are propping up housing prices.
> They only impact the low end. Surely it has more to do with low interest
> rates making houses very affordable.
Then you have the FHA that just looses money and the banks who lose money even though they are making huge spreads and taking no risk while hoarding money and giving it to the Federal Reserve who pays them interest derived from thin air.
Then the Federal Government supports it all by deflating the dollar and basically playing ajustable rate mortgage with the whole US by issuing 1-10 year bonds to avoid paying a decent rate on their borrowings using a 20-30 year Treasury bond which would prove quickly that deficit spending is unsustainable and is leading to normalized interest rates that will floor the economy similar to the Great Depression.
In fact if you take your modified case shiller and plug in the dollar deflation caused by this in the last year you will find the little uptick you have at the end actually is no uptick at all. The curve is still falling away relative to other fiat currencies. Don't expect foreigners to come in and buy up real estate. They already did that and got burned on the bonds and the derivatives linked to them and in their eyes there is no recovery at all in the US real estate market. Just a big fat devaluation illusion of stability.
Govt support also has its limit - as ultimately who supports the Govt - it is the tax payer. So ultimately there would be a revolt - hopefully there would be one - the current policies are quickening the pace of US bankruptcy.
I was at work earlier today and after spending a good 20 minutes at my desk ignoring reality and 10 minutes more creating my own, I came to the exact same conclusions.
So I would say our government is in great danger of outsmarting itself by supporting a phony housing demand.
The "sell the house" frenzy that many adopted (not all because of affordability), but the fear of quick flip failure just may be starting to wear thin.
Is it possible that these unsophisticated speculators follow SA, and are aware of the changing markets,current interest rates, and what's looming just around the corner, and down the road??
I don't think so.
Taxes are going up across the country, which means rents follow.
Therefore the initial premise is now "panic to greed to panic".
Anyone who wishes to still take advantage of the federal tax credit probably has to apply this week in order to close within 60 days. The real indication of how the residential property market is doing will be what the various reports (not just Case-Shiller) have to indicate for the months of November 2009 through February 2010.
There is still a possibility that the federal tax credit will be extended and that the FHA will receive additional funding (as they are really not doing so well).
djackson, good for you, I gave you a plus.