Case Shiller Reveals Across-the-Board Housing Market Declines

By Heather Bell

The Standard & Poor's 500 Index had an impressively rocky year in 2007 but still managed to finish in the black. Not so for the S&P/Case-Shiller Home Price Indexes: Their trajectory was basically a one-way slide amid subprime market fallout and rumors of recession.

The S&P/Case Shiller 10-City Composite Index was down 9.8% in 2007, while the 20-city composite fell 9.1%. The S&P/Case-Shiller U.S. National Home Price Index, which covers the nine census divisions and is calculated quarterly, was down 8.9%.

Source: Standard & Poor's

Robert J. Shiller, Professor at Yale University and Chief Economist at MacroMarkets LLC, characterized 2007 as a "somber" year for the indexes. Shiller is one of the creators of the indexes; S&P recently acquired the remaining share of the indexes that it did not own from MacroMarkets. The indexes cover sales of existing single-family homes.

"Wherever you look, things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or moderate growth rates. Looking closely at these negative returns, you will see that 14 of the metro areas are also reporting record lows and eight are in double-digit decline. The monthly data paint a similar picture, with all metro areas now reporting at least four consecutive negative monthly returns," Shiller added.

And, indeed, the picture is bleak. Although Charlotte, Portland and Seattle remained in positive territory—up 2.3%, 1.2% and 0.5%, respectively—for 2007, all three have been declining steadily since at least August. The worst-performing metro area was Miami, which was down 17.5% for the year. Las Vegas and Phoenix were both down 15.3%, with San Diego down 15.0%.

Source: Standard & Poor's

The 20-city composite has been in a continuous decline since the end of July 2006, while the 10-city composite has been falling since the end of June 2006. And based on other data, a turnaround is unlikely to occur next month.

Yesterday the National Association of Realtors reported its results for January regarding sales of existing single-family homes and condominiums: Sales fell 0.4%, declining for the fifth consecutive month.

Part of the problem is a large overhang of unsold homes and stricter credit standards as subprime mortgages have become a nearly extinct animal. But whatever the cause, the S&P/Case-Shiller indexes will feel the effects for at least another month and, in all likelihood, beyond.

Comments

[cheesecake]

ah this is all old news, we knew the housing market was going down....waste of time....see how the markets have been rallying lately, bunch of hooey gooey ;)

[wallyboy]

the reason is never that property values are too high as a result of the artificially low borrowing rates. the reason is never that the fundamentals of price and borrowing capability are distorted. the reason is never that the '"average buyer" cannot aford the houses at their current price levels.

[BarryRobbins]

I still see a lack of capitulation from investors. Simply put, investors are way too bullish. They still think every sell-off is a buying opportunity. The assumption is that things aren't as bad as they appear. If you agree, you should be buying stocks. I am more pessimistic.

[zedboy]

One thing that I never see discussed when the Case-Schiller Index comes up is that, as far as I can tell from reading their methodology, the index isn't inflation adjusted. So, doesn't that really mean that actual values are dropping faster than the index changes would indicate?

[navkram]

The Shiller index is better than others because it considers price of the same property -not that more expensive homes are not selling. The index is not adjusted for inflation. It is interesting to note that indexes of US inflation similarly do not consider housing prices -only rent. If housing prices are considered, inflation has been running rampant on the coasts since the late 90s but deflation has taken over since summer 2006 -exactly the opposite of the trends reported.

As for the stock market, it crashed in 2000 and has never recovered. Since then the US has dumped money in housing -"it's less risky, you can't miss". Housing is dead money. Now it's time for America to get back to real investments -stocks and bonds.

[Mondo]

"Across the board" is very misleading. The headline should refer only to the markets surveyed.