8-28 On Case-Shiller House Price Reality (No Mainstream Spin)

by Mark on August 28, 2012



1) rates drop by 30% YoY allowing the 70% of buyers who use a mortgage to ‘pay’ 15% more for a house on the same monthly payment;

2)  foreclosures as a percentage of total sales drop 25% YoY lifting the “median” sale price: 

3)  and you comp YoY against a stimulus hangover year;

…”prices paid” will ‘rise’ and ‘comps’ will look great.   But the benefits of stimulus and easy comps will soon turn into headwinds and difficult comps, which is exactly what happened in 2011 following the year+ long home buyer tax credit stimulus pump of 2009/10.  Once again, people are mistaking stimulus for durable fundamentals, which has been a consistent problem since housing’s first dead cat bounce on QE in 2009.

This morning Case-Shiller revealed one of the most known known’s in housing;  that from 7 to 5 months ago (from Feb to April 2012) the price at which people ‘contracted’ to ‘pay’ for houses increased at the median YoY by ~1% from the severe hangover period from Feb to April 2011 when rates were 150-bps higher and foreclosures as a percentage of total sales 33% greater.  Feb through April escrows with 30 to 60 closing periods would have closed from April through June and are now being reported at the end of August as something meaningful. It’s incredible really.

This is the first YoY ‘increase’ since the tax credit period of 2010 (not coincidentally) when purchasing power was also ratcheted higher on stimulus leverage due to 38 states allowing the monetization of the tax credit for down payment purposes through FHA. 

If you remember, during this stimulus period leading up to the July 2010 sunset, headlines were filled with headlines such as “multiple offers return”; “house prices on the rise”; “housing’s ‘v’ bottom” etc for months and months.  With respect to today’s CS, the stimulus-goosed 1h’10 is this years best comp, as last year needs to be discounted as a stimulus hangover period.

In sum, today’s CS is disappointing…a YoY 15% increase in purchasing power and 25% decrease in foreclosure resales and still the CS-20 NSA only managed a 0.5% gain over last year.  o me, normalized, that means real house prices are still falling.


1)  June Case-Shiller reported the average of existing repeat sales’ median prices that went into contract from Feb through April 2012 and ‘closed’ from April through June.

2)  Due to rates 150bps lower YoY (increasing purchasing power by 15%+ YoY for the same monthly payment) and Foreclosures as a pct of total resales a full 25% lower YoY Case-Shiller “rose” YoY in ‘June’.  From Feb to Apr 2012 an average of 68% of buyers relied on a mortgage to buy.

3)  Although ‘higher’ YoY for the first time since the 2010 tax credit period pushed ‘prices’ higher YoY, today’s CS data — normalized for ‘rates’ and ‘foreclosures’ — will reveal underlying house price “depreciation” continues

4)  Based on various other more real-time prices indices — and even NAR’s monthly existing sales data, which do a great job leading CS by a quarter — prices trended “higher” this spring and summer, as they usually do for the ‘season’.

Next Four Months Higher then lower for the winter/spring

Obviously, the monthly Case-Shiller index will now ‘rise’ through Oct representing the rise in purchase prices from March through July we already know occurred. Then in Nov the CS will start heading lower again for the season. Because the index will still be comping against the CS 2011 “double dip” readings for many more months prices paid will be the last to fall into the “triple dip” occurring now, yet they will experience significant headwinds beginning shortly.

Existing Home Sales volume is already weak (never really picked up this year relative to the 2010 stimulus pump), is experiencing significant headwinds in August (will get increasingly heavier each month through July 2013 at least), and when August Existing Sales are released by NAR in a few weeks will suffer a large YoY drop…the first in 14 months.

The Data

Not seeing “escape velocity”, rather massive housing directed rates stimulus that pulled-forward and turbo charged typical seasonality. The problem with this is that going forward unless you pump even more stimulus into the market today’s stimulus becomes a major headwind


1) CS MoM activity bouncing a little harder this season than normal on heavy rates and foreclosure stimulus. This is what a 30% decrease in rates YoY and Foreclosures abated for the election will do…but it’s not fundamental or durable. In fact, my in-house data suggest that house prices have already turned lower for the season (along with sales volume that will reveal a 10% YoY decline in existing sales in August) but due to the 6 month lag in CS this is a story for last Q4

2) CS up YoY just like in stimulus heavy 2010, this year’s best comp. June 2011 was a stimulus hangover year and needs to be discounted for the purposes of meaningful analysis

3)  NAR median prices are a great CS leader…NAR prices rolled over in July for the season meaning CS will start rolling downhill towards year end.


4) Last But Definitely not Least…”Durable Recovery”; “The Ultimate Bottom”?

The chart below is the not-seasonally adjusted Case-Shiller 10 vs 20 indices.

Anybody that can clearly see in these data a “durable bottom”, “escape velocity”, or a “recovery” is a lot better analyst than I.

Have a great Labor Day!




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