Tuesday, July 29, 2008

No city above 200 on Case Shiller

Every city in the case Shiller is now declining-except Denver. There is no "its different here" anymore. These results are for May, possibly the strongest month of the year for SELLERS! Yet prices declined in all areas measured by Case-Shiller. This is before the July tightening of credit. Its a bummer Case-Shiller lags so much... but for such good data, we must be patient.



Here are cities I've been tracking. Now all indications are that prices are continuing to decline since May. Previously, I've predicted about a 25% under-run of the long term trend line. I still predict 2009 will be the year where the nation has the greatest price drops.



These are the derivatives. I graph what fraction of the homes value is being lost per month. Despite how weak this spring/summer selling season was, price declines slowed. However, do not forget, we are exiting the best time of the year for SELLERS! The traditional time of the year for price corrections is October through February. With the integral of price declines to date, I think the market is close to breaking.

I see this fall as the transition to the real-estate emotion of Panic. I see the spring being a switch to Capitulation. Capitulation is the time of the greatest price drops. I think we are in the process of witnessing a "bear market rally." Next month's data will probably show some further improvement in the loss rate (June). I'm sure the NAR will tout that.

A comment on Denver: I'm hearing about pretty brutal price drops now. So they've dropped enough to have a minor "spring bounce." Ok. They'll be giving that back up this Fall with interest. Yawn.

I plot the MONTHLY price drops. My final conclusion is to note that a 4% per YEAR drop is the equivalent of free rent. With credit tightening further, I see the slight "bear market rally" ending in August and starting a faster drop starting in the Fall.

Here are a few individual city graphs:







14 comments:

Rick said...

GREAT job! I have been looking for something like your blog for years. Keep up the good work! like you, I am planning to buy at the depression stage. Prices will overshoot (undershoot)on the downside given the avg person's rationale on buying.

The Anonymous said...

Glad to see you back to posting graphs of Case Shiller. After last month, I was worried you would quit posting graphs of Case Shiller and Inventory since they were starting to show things you didnt want to see.

Incidentally, why are you so concerned that some areas may be able to say "its different here"? In my mind, there are 2 distinct markets.

1. The bubble markets (i.e. LA, PHX, DC, etc.) where people got drunk on speculating and junk credit and prices rose into the stratosphere and are now coming down, sometimes hard...

and

2. Non bubble markets (i.e. Charlotte, NC, Austin, Tx, Birmingham AL,) where these things didnt happen.

In the bubble markets, the peak buyers probably made a mistake, in the non bubble markets, they did not. The non bubble market buyers will say "its different here" and judging by case shiller I would say, Yup, you guys will be OK.

Again, its no skin off my nose, I dont care about Charlotte, they say "its different here", I say, OK good for you. Do you see it differently?

wannabuy said...

Incidentally, why are you so concerned that some areas may be able to say "its different here"?
1. Credit is national and tightening.

2. Notice that it was a global real estate buying frenzy. Too many are over-invested in real estate. When everyone wants out, no one wants in.

We're entering a deep recession due to real estate. I'm arguing that the bubble propped up markets that should have fallen. Its killing retail nationally. There is no area of the nation that didn't succumb to MEW.

Prices will overshoot (undershoot)on the downside given the avg person's rationale on buying.

Average person is rationale? ;) Ok, if you haven't found Calculatedrisk.blogspot.com or thehousingbubbleblog.com, time to head over.

The anon: Its a crazy work life that kept me from posting Case-Shiller. You'll see it from me even after the recovery.

But first... 2009. I foresee a lot of the changes the bears have been predicting ocuring during 2009. Once we lose this selling season, its not over yet, the tightening in credit/down-payments/appraisals and income requirements will keep the market down for a long time.

Oh, My #1 thing about 'its different here' is that I've yet to see anyone say it about an area that isn't having a price drop and isn't about to see prices drop further.

This will only be a recession. But we over-invested in real estate. Where are all of those people going to go? Oh... they'll find somewhere (solar, nuclear, ethanol?, or heaven forbid they'll rediscover manufacturing). But a recession occurs as people switch from the over-employed field(s) to the emerging fields.

Got Popcorn?
Neil

The Anonymous said...

Glad to hear you will post about CS even after the recovery. I hope that goes for inventory too. I have really grown to like your graphs.

"Oh, My #1 thing about 'its different here' is that I've yet to see anyone say it about an area that isn't having a price drop and isn't about to see prices drop further."

Heh - Type in the words "Charlotte Real Estate Bubble" in a browser and you will see link after link screaming at the top of their lungs, ITS DIFFERENT HERE. So far at least, Case Shiller says they are right (they only got up to 130% of 2000 values to begin with).

wannabuy said...

Yep, I'll keep posting, even if I don't like the numbers. I'll do an inventory update in a week or so. :)

Charlotte just lost a HUGE number of jobs at Wachovia.

Case-Shiller's #1 fault is it really lags. Now, I expect June to be the best month of the year for sellers. Heck, in areas in the 1990 downturn that dropped 40% over three years, they would appreciate every April, May, and usually June!

So I'm going to wait for seasonality to go back in my favor. ;)

Oh, T-minus one week to my baby's birth! So if I stop posting... its for that reason!

Got Popcorn?
Neil

The Anonymous said...

"Charlotte just lost a HUGE number of jobs at Wachovia. "

Good point - I forgot about that - plus with BOA being there (despite the fact it didnt really participate in garbage loans), I could see some real consolidation/contraction. One of my big harping points is job loss, job loss, job loss. This could really hurt them the same way it has clearly hurt previously immune Manhattan.

"Oh, T-minus one week to my baby's birth! So if I stop posting... its for that reason!"

Pretty good reason to stop posting IMHO. I hope everything goes well for you & your soon to be expanded family.

sandman said...

Neil,

Great work, as always. A couple of interesting points:

I still predict 2009 will be the year where the nation has the greatest price drops.
Does this apply to Phoenix and Vegas or is it a general statement? Looking at the top graph, if the worst is yet to come then the undershoot will be very large.

I foresee a lot of the changes the bears have been predicting ocuring during 2009.
I assume you're talking about very tight standards, 20%+ down required, and high interest rates, right? Won't these be the catalyst to extreme price drops? If so, I think we'll undershoot your 4% inflation line by a significant amount. I guess it makes sense, a super-bubble on the way up results in a massive undershoot.


btw, congrats on the baby! My nephew is due on 8/8/08. Here's to hoping we don't miss opening ceremonies :)

wannabuy said...

Sandman Said:
Does this apply to Phoenix and Vegas or is it a general statement?
Its a "National statement," but it also applies to core Phoenix and Las Vegas. Due to their overbuilding, these two will overshoot tremendously.

I'm seeing areas in exurbs with granite counter top homes selling for $65/ft^2. In those areas I'm *not* predicting a great price drop in 2009. If I'm wrong... I might have to join TJ in his camp. ;)

I assume you're talking about very tight standards, 20%+ down required, and high interest rates, right? Won't these be the catalyst to extreme price drops?
Exactly. :)

The anon:
One of my big harping points is job loss, job loss, job loss. This could really hurt them the same way it has clearly hurt previously immune Manhattan.
Exactly. Its why I'm predicting a two year recession. Actually, it looks like a 30 month recession.

Thanks for the well wishes too!

Got Popcorn?
Neil

The Anonymous said...

"Its a "National statement," but it also applies to core Phoenix and Las Vegas. Due to their overbuilding, these two will overshoot tremendously."

Neil, do Phoenix and Las Vegas have a "core" that havent fallen? If you look carefully at the writings of David Stiff and Carl Case, who often quotes "suburbs as new slums" Chris Lenberger, they argue that these places (especially phoenix) dont really have a core - they are hardly urban - the vast majority of it is just mcmansion filled suburbs with jobs spread throughout. Thus, in these cities, the pain should be widely distributed even in high end areas no matter where they are located. Its probably no coincidence that PHX & LV are falling fastest out of any cities on your chart.

By contrast, look at what they write about places like Boston, NY, DC, etc. In these places, they have a true, vibrant, urban core which (due to changing demographics, gas prices, etc.) have become more valuable over the last decade. Their argument is one more about geography than it is economics. Thats pretty much the way I see it too.

This distinction is often lost on west coast guys since few of their cities have this sort of vibrant urban core. I think you get this distinction, but when you use an oxymoron like "core phoenix" I am not as sure.

In a nutshell, case shiller suggests "high end" areas anywhere can be hurt and sometimes, depending on where they are located, hurt badly. But if they are "high end" and "in the core" they will do better. In DC, ultra high end, exurban Loudoun county virginia was smashed long long ago. Close in, moderately high end Arlington has held on, and (due to unbudging 4-5 month absorbtion rates) will likely not catch up to Loudoun. I just wish someone had told me that before I waited to buy in Arlington!!!

The Anonymous said...

Incidentally Neil, I cand find the one article I am thinking of, but here is one of the articles Bob Shiller penned about this subject

http://www.kc.frb.org/publicat/sympos/2007/PDF/2007.09.27.Shiller.pdf

Notice on page 14 he quotes Chris Leinberger. Leinberger is the author of this little gem

http://www.theatlantic.com/doc/200803/subprime

Now, Leinberger is a little extreme, but you should note that Bob Shiller and he are pretty much on the same page with these things. Of course you have seen the work of Shiller's boss, David Stiff:

http://www2.standardandpoors.com/spf/pdf/index/052708_Housing_bubbles_collapse.pdf

Just somehting to keep in mind when analyzing how this all plays out....

wannabuy said...

This distinction is often lost on west coast guys since few of their cities have this sort of vibrant urban core.

But then again, NYC prices dropped tremendously in the 1970's. Since we're repeating that recession... We're seen Manhattan prices drop!

I'm watching areas that were 'indestructible' in LA have owners turn over their keys straight to the bank.

When analyzing this, I realize that "effective layoffs," won't be happening until the Fall. I also understand most of those 'East Coast Core' areas are very dependent on West Coast Money.

FYI, I lived in Connecticut for two and a half years. I spent quite a bit of time in Boston and NYC during that time. Business and pleasure take me there and DC. I've also lived in Florida. One thing that strikes me about many who live on the East Coast is that they often have a more 'provincial mindset' than those who have traveled. West Coast industries tend to be extremely travel dependent. I'm not saying those do not exist out East (obviously they do in NYC); but this is a GLOBAL bubble falling apart.

e.g., The West Coast is not going to be that impacted by Britain and Spain falling apart. But the East Coast will. The West Coast is more dependent on trade with Australia and Asia.

But as I've noted, no predictions until the Fall. By then credit tightening will have fallen into place. It doesn't matter where you live, the MBS market is toast. Our banking system is having to do a hot reboot.

Got Popcorn?
Neil

The Anonymous said...

Recall that in the 70's NYC (as well as DC & many east coast cities) were losing population - thats a far different animal than what we are seeing now.

I think you are being a bit too stereotypical about your traveled comment. I for one have been to 14 countries on 4 continents - however there are at least 3 people on my street that have been to 4 times as many places (Europe is close for us & many here have worked overseas in connection or in support of the state dept or world bank).

FYI, my family did live in Walnut Creek, CA for a while. West coast lent it self to few travel destinations abroad (16 hours to Osaka not my idea of fun). However as you noted, our proximity to Europe will hurt us alot more (when they melt down) than it will out west.

In any event all I am saying (or trying to say) is watch your definitions of high end and core. Oftentimes they are interchangeable, but many times they are not.

The Anonymous said...

Incidentally - I was reading your comment again re: provencialism. I do think it is very accurate when it comes to east coasters lack of travel to the west coast (US).

Perfect example is my wife. She lived in London (work) for a while, as well as Greece and Northern Italy (semesters abroad). However, for all her international travel, she has never been west of the Mississippi!

This is unfortunately all too common out here. I guess if you are 5 hours from both Europe & West coast, the former wins out. Still, you would think for all the travel abroad, you would think they would spend more time in the more spectacular areas in the western US!

nancy said...

I have no idea about this site.But i understood that it is a market in future the prizes increases.I think it deals with the increasing the cost in futyre.But in the figure in U.S The house rents increase.
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nancy
realestate