Nobody should be very surprised that the Case-Shiller index rose again in August.
This time around, the long-suffering low tier turned in the best performance with a robust 2.5 percent increase. The middle tier rose 1.6 percent for the month and the high tier increased .3 percent, with the aggregate index rising 1.6 percent.
Here’s a graph of the three price tiers and the aggregate index since their bubble peaks:
I guess the only way to get
I guess the only way to get good data is to go retro. It really is “no surprise” as it’s part of the summer surge we already knew about. Here is a sober analysis:
http://www.nytimes.com/2009/10/28/business/economy/28home.html?_r=1&ref=economy
This quote:
“…Another factor likely to weigh on home sales in the coming months is a rise in interest rates. As the Federal Reserve ceases its buying of mortgage-backed securities, rates may well drift up to 6 percent, from 5 percent…”
Is, I think, very accurate because it seems to be happening right now.
Marketplace had an
Marketplace had an interesting view on Case-Shiller.
Whitney Tilson is a money manager at T2 Partners. For several months now, he’s been calling the recent run-up in home prices “the mother of all head fakes.” And he points to signs in the latest home price index that he’s right.
WHITNEY TILSON: The Case-Shiller numbers showed that home prices, while still increased, increased at a lesser rate. And what that’s telling us is that just like every year for the past 20 years, demand for homes, and therefore home prices, are strongest in the spring and early summer, and they’re the weakest in the off season — in the winter.
TILSON: If interest rates go up, if the unemployment rate gets worse, if the $8,000 tax credit isn’t renewed, if FHA stops doing all of this massive, reckless lending, in my opinion — if any of those things goes away, look out below in housing prices.
David Blitzer heads the S&P housing index. He points out the Federal Reserve is planning to remove one of those supports.
DAVID BLITZER: They’ve said they’ll stop supporting the mortgage markets come March, and that means slightly higher mortgage rates. And that also means some depressive forces on the housing market.
..Another factor likely to
..Another factor likely to weigh on home sales in the coming months is a rise in interest rates. As the Federal Reserve ceases its buying of mortgage-backed securities, rates may well drift up to 6 percent, from 5 percent…
http://theautomaticearth.blogspot.com/
With the government support about to vanish, the future prospects for home prices and the building and mortgage industries are Halloween material, while Bank of America (which bought Countrywide) and Wells Fargo (the country’s largest mortgage lender) face increasingly shaky days. Home prices are ready to go into a freefall. When the smoke clears prices will be down 80-90% from their peak. Needless to say that will cause such a chaos it’s hard to predict what America will look like.
I discussed the issue of
I discussed the issue of government intervention here:
http://www.voiceofsandiego.org/articles/2009/10/28/toscano/674governmenthousingintervention100409.txt
I don’t understand why anyone thinks that the government support is going to “suddenly disappear.” The govt is committed to high home prices (which is a horrible idea, of course, but it is nonetheless a fact). They will keep supporting prices for a while to come. And if they do miscalculate and take the support away too abruptly, and home prices were to start getting whacked again, isn’t it crystal clear that they would just reinstitute even greater support?
BTW: “Senate Close to Deal Replacing Homebuyer Tax Credit” http://www.bloomberg.com/apps/news?pid=20601087&sid=aE4U2k3Pf5oo
Is anyone here surprised by this?
Rich
Rich Toscano wrote:I
[quote=Rich Toscano]I discussed the issue of government intervention here:
http://www.voiceofsandiego.org/articles/2009/10/28/toscano/674governmenthousingintervention100409.txt
I don’t understand why anyone thinks that the government support is going to “suddenly disappear.” The govt is committed to high home prices (which is a horrible idea, of course, but it is nonetheless a fact). They will keep supporting prices for a while to come. And if they do miscalculate and take the support away too abruptly, and home prices were to start getting whacked again, isn’t it crystal clear that they would just reinstitute even greater support?
BTW: “Senate Close to Deal Replacing Homebuyer Tax Credit” http://www.bloomberg.com/apps/news?pid=20601087&sid=aE4U2k3Pf5oo
Is anyone here surprised by this?
Rich[/quote]
The world is long assets. Voters, generically, are long assets. The government will pander to those that vote. And as I’ve said many times here, at the end of the day you have to adapt to the way the world is, not as you would like it to be.
“Men have in their minds a picture of how the world will be… and the world may be many different ways for them, but there is one world that will never be and that is the world they dream of.” – Cormac McCarthy
Sure … the government will
Sure … the government will pander, so long as they are able. There’s not much theory (or empirical evidence) supporting the notion that this government intervention will do anything more than delay the inevitable. We have the 1930’s and the last 15+ years in Japan as possible models, but it’s hard to draw any conclusions. People tend to get caught up on identifiable differences when debating the outcome – but maybe they should just focus on the sheer magnitude of the current mess.
A former work colleague recently returned from China and confirmed what I have been reading for eight months now on numerous blogs. The central government is busily misallocating their windfall from more than a decade of massive trade imbalance. They continue to create capacity for a domestic consumer economy which they are killing in its infancy – their actions run counter to incubating the social safety net that is a prerequisite to consumerism. So don’t count on China to pull the rest of the world (or even itself) out of this mess. Corruption there is just as bad as here, if not worse – no big surprise. Their latest bubble will likely pop soon enough.
If Tuesday’s elections are any hint, the “hope” administration is losing traction. The poor-excuse-for-legislators that we currently have will continue to back life-support for banks and Wall St as long as it looks good for their re-election. Maybe they’ll largely survive the 2010 polls, but this is by no means certain yet. What happens if another shoe drops (eg. European banks by way of East European defaults) and plan A is suddenly revealed as the lie which it likely is. How long can the banksters continue the current fraud?
Blue-collar America has learned over the past 2-3 decades how to survive with at least one foot in the “gray-market”. I suspect that as more of us white-collar workers (engineers etc.) are forced to continue competing in a global labor market that tilts further and further in favor of skilled foreign workers, many of us will have to learn how to “trade” weekend work with others having side-job skills that complement our own. If the “real” economy doesn’t work for us, then our survival will hinge upon creating a new one. Do not underestimate the impact of removing all this “energy” from the “real” economy. This in conjunction with the accelerating contraction of local governments will likely confound the attempts by banksters (through their congressional lap-dogs) to re-institute their casino economy.
SDnonSerfer
[quote=SDnonSerfer]
Blue-collar America has learned over the past 2-3 decades how to survive with at least one foot in the “gray-market”. I suspect that as more of us white-collar workers (engineers etc.) are forced to continue competing in a global labor market that tilts further and further in favor of skilled foreign workers, many of us will have to learn how to “trade” weekend work with others having side-job skills that complement our own. [/quote]
Agreed. If you have a job that someone in India or China can do for 50%+ less than you can do it, you should be worried about your long-term outlook. Because technology is going to make it easier and easier to ship that job overseas.
I love marketplace (as well
I love marketplace (as well as Marketwatch)…I heard that this morning. Excellent post– Thanks.
“The mother of all headfakes”
Again, you’ve got the “Gov’t should do less–GD socialists” teabagger contingent which, I think, is the biggest threat to recovery.
And here’s the WSJ weighing in today:
“…Analysts warn that prices are being propped up by the government and may resume falling in the coming months as that support fades away. The first-time home-buyer tax credit has sparked demand, in the process pulling sales that might have happened in late 2009 and early 2010 and jammed them into the past few months. The supply of foreclosed homes on the market, meantime, has temporarily decreased as a result of rules that require banks to consider more people for loan modifications…”
It is clear this “recovery”
It is clear this “recovery” is orchestrated by government and they borrowed buyers from the future.
With regard to the supply of foreclosed homes, as I stated on Rich’s earlier thread:
There are far more many NODs that should be filed that are, let’s say, suspended. Just more distressed invisible properties that mount. You have to dig to find out the truth. It’s nothing but games. Hot potato, kick the can and now hide the pea under the shell. Or sweep it under the rug.
The NODs are still there, just not recorded. The foreclosures should be happening, but banks aren’t doing it and the banks are “healthy” because of accounting rules.
I feel like I’m at a magic show. All lame tricks. Doesn’t really change what’s happening. Just trying to give you the illusion that everything is okay.
OK. You just quoted yourself
OK. You just quoted yourself 🙂
Agree with the “kick the can” concept…However, is it kick the can or is it an effort at finding a bottom in an orderly fashion?
The market feeds on itself and the confidence placed in it. This kick the can is useful in some regard at avoiding over corrections and probably a lot of the avoidable (strategic) foreclosures that come about because of over corrections. At some point, I think Rich may agree, confidence has to be placed back into the housing market for it to begin to recover.
The very perception that the gov’t won’t allow housing to fail may create enough atmosphere for the spark to catch. Question is, do people’s appetite to spend federal dollars and those interested in seeing a strong dollar lose patience first and pull plug before spark can catch?
Today I came across two
Today I came across two listings. One was going on 3 years and the other one was 2 years of attempted sale and NODs and short sale and still not sold. This has been a common thing, a year or two. The three years of attempting to sell is the longest I’ve come across so far.
The games are not instilling confidence in me. I find it deceptive.
Just as during the bubble when people making 30k a year and were buying 500k houses caused me to think it doesn’t make sense, I now have that same sense of concern.
http://www.reuters.com/articl
http://www.reuters.com/article/GCA-Housing/idUSTRE59Q27X20091028
“The gains in U.S. home
“The gains in U.S. home prices in recent months may not be sustainable and increases in some areas of the country appear to be in “bubble territory,” an economist known for his property market expertise said on Tuesday.”
Well, we know what happens w/bubbles.
jpinpb wrote:
Well, we know
[quote=jpinpb]
Well, we know what happens w/bubbles.[/quote]
It’ll go for longer and get bigger than we thought possible?
Yes, AN. Better run out and
Yes, AN. Better run out and get as many places as possible.
jpinpb, since you’re the one
jpinpb, since you’re the one who’s calling this a bubble, you should run out and get as many places as possible. I called the housing market a bubble in 2003 and it went longer and higher than I thought possible. It also crashed harder than I thought possible too if that make you feel any better.
I think of all the variables
I think of all the variables that can bring us back into serious depreciation, the cessation of rate support is the biggest one. What will be quite interesting is the response by the govt once that does happen.
Once more my cynical side, and many people have been telling me I am more and more cynical these days, feels alot of this support is political in nature. That is, it is hard to promote political agendas when the housing market and the economy is in the can. However when things are not as totally crappy as they should be, then you can get some things passed. So if things start to crap out in March but there is yet another massive regulatory structure to be put in place, my guess will be immigration reform because healthcare will be passed by then, it seems to me things will still somehow miraculously not be crapping out.
So given a timeframe of spring to start to prime rates upward again, seems reasonable to me. However I do believe that prediction could be a bit early. I think getting past the 2010 fall elections will be a crucial point in time. Thus keeping the tape and string in place may need to be done longer then March.
So far the entire secondary market is pretty much the Fed and GSEs. There is no private secondary market. So if the Fed goes away, I will not be entirely surprised to see the entire secondary market supported by the GSEs.
Rich, I agree with you, to an
Rich, I agree with you, to an extent. Our elected leaders will prop up RE until their cold dead hands are pried off of the deficit bond presses. All of them Democrats and Republicans alike. Both are wedded to the idea of ‘high housing prices are good for everyone’. Sound fiscal and economic policy be damned.
But the Fed isn’t totally. They actually have to worry about other things like inflation and moral hazard. I dont believe for a second that they will stop all buying of bonds in March, BB is on a tear to make sure things look like they are going smoothly. They were suppose to stop in November originally if I remember. But eventually they will stop, my guess is just before the 2010 elections (that way they can point to ‘the cesation of stimulus and have a ‘Mission Accomplished’ banner moment just before the election too), and when they do rates will rise. Rising rates will take the wind out of any market that has been manipulated the way ours has for the time it has. It will have been half the last decade at 5% rates, 7% would be a kidney shot and a half. And the Fed may accept that, they tollerated 6.5+ in 2008.
DWCAP wrote:….But the Fed
[quote=DWCAP]….But the Fed isn’t totally. They actually have to worry about other things like inflation and moral hazard.[/quote]
inflation, moral hazard, strong dollar: The Fed is obliged to pay lip service to these concepts. Some people fall for it, others don’t.
With the current defecit
With the current defecit spending the country is hell bent on it is clear (at least to me) that the govt has made any “decision” on how they will walk the so called tightrope.
They basically have dropped an anvil on it and said to hell with our children and grandchildren.
Anyone who plays poker identifies when one of the players has gone full tilt.
Well…. the biggest player at the table has gone full tilt. Guess who is bankrolling that player.
SD Realtor wrote:With the
[quote=SD Realtor]With the current defecit spending the country is hell bent on it is clear (at least to me) that the govt has made any “decision” on how they will walk the so called tightrope.
They basically have dropped an anvil on it and said to hell with our children and grandchildren.
Anyone who plays poker identifies when one of the players has gone full tilt.
Well…. the biggest player at the table has gone full tilt. Guess who is bankrolling that player.[/quote]
Is it Vince Van Patten?
Close…. but I think it’s
Close…. but I think it’s his asian brother Chinky Van Patten.
Oh man, I’m going to hell for THAT one.
Murf2222
heheheheh… nice one Rich…
heheheheh… nice one Rich…
perhaps Gabe Kaplan?
Rich, I agree that the gov’t
Rich, I agree that the gov’t will remain as accommodative as possible…But they’ll have to make choices as they are stuck between a rock and a hard place, opposing forces: The wingnuts and strong dollar advocates on the one hand and then the folks that are worried that a bump in the overnight rate will tank housing.
The gov’t and Fed have a tight rope to walk– there is no economic action that the gov’t can take or perpetuate that will happen in a vacuum. That’s why I think we’ll be bumping along any “bottom” for a while as they will slowly yield to strong dollar pressure and, as we get closer to elections, anti-“socialist” ideolgy.
http://www.marketwatch.com/story/stock-analyst-market-will-cheer-fed-tightening-2009-10-28
This may very well pan out
This may very well pan out like the “Cash For Clunkers” program. While the incentive was active, car sales did great – after it ended, car sales fell off the cliff.
I see this happening after the US Gov’t stops it’s $8,000 bonus to home buyers.
See, Rich? There is a career
See, Rich? There is a career for you after Piggington 🙂
The Feds first trick was to
The Feds first trick was to convince the world US RE could go up ad finitum and sell them financial instruments based on that premise. Mission accomplished, it worked like gang busters.
For the Feds next trick, they are going to show you how to make 25 trillion in losses disappear and make housing and employment go up simultaneously.
It is their grand finale. I can’t wait to see this one goes, given how well the first trick turned out.
Pay me no mind, I’m just
Pay me no mind, I’m just passing through and thought I’d stick my twopence in ….
I’m voting with the “big head fake” contingent, and here’s why:
1 – Asset bubbles generally return to trend, and we’re not there yet in most market segments in this region. I think it unlikely that this end of the cycle will somehow be the exception to the rule.
2 – There’s no good news on the horizon for any of the economic fundamentals in this region. We’re nowhere near replacing the mortgage-worthy employment that we used to have.
3 – Price increases are dependent on anticipation. Right now there’s some anticipation that things are going to get better and the supply/demand dynamic is going to improve. Right or wrong, that psychology is being driven in part by some of the claims being made by the boosters.
People want to believe, but in the end most of these claims will not pan out. Whenever there’s a loss of credibility there is always a backlash to go with it.
The current volumes are tied to expectations of price increases, and there’s almost no room for significant increases right now. The question nobody ever asks is this: Of the investors who currently comprise up to 50% of the buyers in some of the low-end neighborhood, how many are flippers with a 2-year window vs buying for the purpose of rental income cash flows?
Of the flippers, how many will stick around if/when it becomes apparent that there won’t be a 20% price increase in their holding period and the rents are in decline? Tenants and toilets get old after a while, which is why rental-oriented investors never play in the single family market.
4 – There are still a lot of bad things that can happen in the next couple years, and whatever go-go psychology is out there right now is but a thin veneer when compared to what it was back when everyone was giving each other buy now or get locked out forever advice. I don’t think it will take much to put the sheep back into duck-n-cover mode.
5 – The commercial market correction is just about to hit its stride and its already causing big problems at the lenders. The difference here is that, unlike with residential properties, the media isn’t going to be trotting out the poor Mom&Pops or the corporate bigwigs who are losing their commercial properties and are pleading for relief; There will be no public outcry for them and we won’t even be bailouts or loan modifications for them. For that reason and others the collapse of the commercial side of the market will be swift, deep, and cruel.
I’m already seeing some 2009 resales of commercial properties purchased in 2004 and 2005 that represent 40% and 50% declines. Half of those losses (and more) by percentage have accrued just in the last 12 months. The commercial correction started a lot later than the residential correction but it’s moving at a much faster pace.
———
I liken the current bounce to that of the stock market. There are people who are playing because they think there’s money on the table. If/when they figure out that there isn’t really that much money to be made they’re going to withdraw again.
With that said, I don’t believe in the 80% price decline scenario for residential properties. I think the rental market will provide a floor and I believe that some market segments are already at that floor. There’s a currently much narrower gap in attributes between the bottom end of the market ($300k and less) and the upper-middle ranges ($600k) than ever before, so that tells me that the middle and upper ranges have a lot of room for price compression.
I’m seeing apartment properties selling for half their peak pricing. Even with the increased capitalization rates that now prevail in the market that means that, if necessary, these new owners can afford to cut their rents somewhat and still break even. They have the competitive edge for tenants and occupancy rates when compared to the apartment buyers from 2002-2007 or so who need the top rents and more in order to refi when their respective refinance periods hit. This is the primary source of apartment market foreclosures that are driving the current price correction trend in that market.
Simply put, I still there’s some room for rental decreases in this region. What with employment being in the tank I’ve got a 75% confidence level that rents will decline by 10% or more. This will put additional downward pressure on entry level home prices independent of any other factor. Further price decreases on the bottom end will eventually make their presence felt all through the spectrum because – as I’ve often said here – all these market segments are ultimately connected and inseparable.
I don’t think that anyone who has pulled the trigger on a bottom end home at any time during the last 12-18 months is in significant peril, but I definitely wouldn’t be dallying anywhere in the $500k+ price ranges right now.
Excellent post, Bugs.
Excellent post, Bugs.
Bugs wrote:
I don’t think
[quote=Bugs]
I don’t think that anyone who has pulled the trigger on a bottom end home at any time during the last 12-18 months is in significant peril, but I definitely wouldn’t be dallying anywhere in the $500k+ price ranges right now.[/quote]
That’s what I love about you Bugs, balance! No spam and ammo, just some common sense. You’ve missed at least a year, we miss you! Just in case you read this, thank you for your advice those years ago when the world was upside down. I ended up plunking down 265k for a 3200 sq ft newer repo, ended up with a P&I of $1400 and had been renting a condo for $1500. Comps have hit mid 3’s lately, if it is a head fake, I’m fine. If you find yourself up this way, I owe you a beer, in ten years, if all goes well, I’ll owe you a boat or a car. Consider your karma bucket full. Don’t be a stranger, I get asked for my advice these days and it still feels weird, the truth is, I got most of my info from you.
Wow. Bugs is back. Nice.
Wow. Bugs is back. Nice. Don’t be such stranger, eh ?