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!




{ 16 comments… read them below or add one }

Tom Lawler August 28, 2012 at 5:37 pm

The “national” case shiller HPI increased by 6.9% on the quarter last quarter, the largest quarterly increase in the index, and way above consensus. Relative to expectations, what was “disappointing?” Very confused.


Mark August 28, 2012 at 6:23 pm

Disappointing to those who all year have been preaching “escape velocity” and a “durable recovery”. Even QoQ they were disappointing in this regard.

When the houses included in the June 2012 Case-Shiller were “priced” at purchase contract — between Feb and April 2012 — rates were over 150bps lower than Feb through April 2011. This creates an additional 15%+ in purchasing power for the 70% of people who get loans to buy. Moreover, Foreclosures as a pct of total sales were 33% greater, as this year they have been abated for the election cycle. Lastly, 2011 is a terrible comp year because there was no direct housing stimulus running…2010 is a better comp but even then the $8k tax credit pales in comparison to the 30% drop in mortgage rates from 2011 to 2012.

Anyway, when you unadjust, normalize, handicap and analyze, based on the massive increase in purchase power on rates, the distressed mix shift skew and the overwhelmingly more positive sentiment YoY June CS 10 and 20 only being up 0.1% and 0.5% respectively is net house price depreciation…very disappointing.

And Q12012 vs Q22012 being up 6.9% is apples and oranges…a terrible comp. That’s because Q1 CS is a result of purchase contracts back to August before the Twist Ops plunge in rates, lack of rain/snowfall, and election cycle foreclosure abatement took effect for the season while Q2 includes the Twist, weather, and the lack of foreclosures. You just can’t compare the two periods sequentially like that.


Takua August 29, 2012 at 6:09 am

Tom, when you have un-realistic expectations the way Mark (former Mr. Mortgage) Hanson does, everything is “disappointing”. Perma-Bears have been doing this for years. Karl Denninger for example has been continually “disappointed” by metrics like GDP for 3.5 years. Yet, the DJIA has more than doubled during that time.

You have to wonder, how much further certain indexes must rise above their bottoms before certain people are no longer “disappointed”…


Mark August 29, 2012 at 9:36 am

I am not a perma-bear. I am a data parrot. And the data have been perma bearish for 5 years when do just take the time to unadjust, normalize, handicap, overlay stimulus periods, and analyze.


Logan Mohtashami August 29, 2012 at 6:14 am

What is scary about housing is this. Rates have made a huge plunge downward this year and purchase applications have been weak, not average or good but weak. In my work we simply don’t have enough qualified home buyers in this country to make a strong push in home sales. The after tax/expensive incomes for Americans not only makes it impossible for them to qualify but for those who can a new home is still too expensive for them.


Joe S. August 29, 2012 at 10:15 am

I just want to thank you for starting to write on a more regular basis again.

The propagandists are out thick trying to convince anyone that will listen that “NOW” is a great time to buy. They will site historic low interest rates and lack of inventory as evidence that housing is back.

My own rudimentary research says almost the opposite, and a simple check in redfin confirms this to me. I set my parameters bdrms/bath/lot size/sq ft & a $600K price(max). (Northern CA). There is literally only a handful of properties for sale. Odd for this time of year. Then I reverse the price, setting it for “minimum” and the map EXPLODES. Housing for $800K+ is abundant but the wages and loan products in the bubble years are not there to afford these houses at those prices. I dont know what the historic ratio is for million$ houses v. median$ houses on the market would be but logic would suggest that they are only a fraction of the fat middle instead of outnumbering the lower tiers.

If we establish the historic norm where organic sales make up 70% of the market it is easy to see housing will continue to limp along for a decade.

Thanks for continuing to write and share this valuable information.


Jeff D. August 29, 2012 at 10:50 am

Takua – If you are using the “Dow Jones” as a realistic indicator of the economy, you are not very bright.

The fact of the matter is we’ve been in an economic DEPRESSION for 4 years, but the combination of Federal Reserve scams and games and allowing the Bankrupt Financial institutions pretend they are actually solvent (thanks to Congress suspending REALISTIC accounting – ie- FASB) – the bubble has not truly deflated. All we’ve done is run in place for 4 years while the hangover builds larger.

All of this nonsense is going to come crashing down because you can’t keep faking your way to prosperity with “money” that doesn’t actually exist. Bubbles always lull people into complacency and that has happened again.

It will all change soon, and not for the better — you’ll see soon enough………


Takua August 30, 2012 at 7:04 am

Jeff – I dont think the DJIA is a “realistic” indicator of the economy. It is however a realistic indicator of the herculean efforts employed by the govt to prop things up. Further, despite the howls of protest from certain people such as yourself, there is NO SIGN that govt manipulation will end anytime “soon.”

Read the congressional letters of Millard Tydings. Starting in 1937, he argued the govt efforts (particularly ag price supports & subsidies) to stem the depression merely “delayed the inevitable” and the 1933 bottom was not the “real” bottom, and that things would come crashing down once again “soon”. He felt fleeting moments of vindication during the 1947 recession & a few others. But even in those recessions, CPI, DJIA and other indicators never did get back down to 1933 levels. Much less the 1937 levels he thought were “unsustainable”

The question then becomes, when do you accept that once again, the govt can kicking (which has been going on in one form or another since 1812) has now become the “reality” of our lives? In the great depression, the smart ones realized this in 1937 and accepted those supports are now reality. The dumb ones, like Senator Tydings spent 30 years on the wrong side of the trade until he died.

Heard the axiom “the market can stay irrational longer than you can say solvent”? Heres the corrolary…”the government can play extend and pretend longer than you can stay alive”


Gaucho August 31, 2012 at 9:17 pm

Takua – the stock market peaked in March 1937 and fell 49% until it bottomed in April 1938. Furthermore, the market had 3 negative years in 39,40,41 with a “real” market bottom not until WWII. There are always perma-bears and perma bulls. Valuations matter, and except in rare situations, reversion to the mean will happen. With respect to the current stock market, it isn’t as overvalued as the year 2000, but with CAPE of 22, and secular bottoms made around 7, there exists some risk. From a real estate perspective, just look to Japan, or from an equity market perspective for that matter.


Advisor August 29, 2012 at 2:02 pm

Sadly, we have a broad, highly paid group pushing hard for a housing “recovery” which simply doesn’t exist.

The facts are;

-Housing Prices Are falling

-Housing Demand is at 15 year lows

-Housing inventory is massive in the tens of millions of excess empty houses

-Housing prices are grossly inflated… and falling


wiliagby August 30, 2012 at 1:29 pm

Well, I say statistically what has been written is arguemently correct. But, since robots aren’t purchasing these homes lets add some emotions and quality of living ideas into the mix. Unless people strive to rent thier whole life or decide not to build a life, these points are correct. I say there is momentum and property will always be an investment for the long term. Its better to live rent free when the property is paid for than not. You can personalize your living conditions from black lights :) to a waterfall. So, I say there is no better time to buy than right now. Especially for gen x and the millenials.


Advisor August 31, 2012 at 7:30 am

Momentum? Investment?

Housing Demand is at 15 year lows and falling. That’s momentum?

Housing never an “investment”, EVER. Housing is a depreciating asset and a liability until the day you’re in your grave.

And considering rental rates are HALF the monthly nut of purchase costs, of course people are going to rent as housing prices continue to fall.


Tom Lawler September 10, 2012 at 3:14 pm

Sorry for the delated response; when one is old and sick, well, one doesn’t stay online and respond continuously.

My point was that when one says that a report is “disappointing,’ it has be relative to “something,” e.g. such as expectations. Relative to “expectations,” the Case-Shiiller HPI report was not “disappointing.” That is factual.

Relative to what some analyst migh have liked to see to turn his own opinion, however, there is no “factual” basis to determine whether a report os “disappointing” or not.

I’m guessing that while the Case-Shiller HPI report was unambiguously “better” than “consensus,” Mark did not view it as “better than consensus enough” to alter his view, and as such Mark viewed it as “disappointing,” in a sort of strange definition.

the other story no one here writes about is the stunning, almost inconceible surge in the number of SF detached homes that are now occupied by renters. Thoigh Mark might view the explosion in the SF rental market as “disappointing,” based on his sorta strange definition.


Advisor September 11, 2012 at 1:28 pm

Mr. Lawlor,

Your problem with Mark Hanson isn’t Mark Hansons problem. It is yours. Why? Because you have an equity stake in the direction of prices. Mark Hanson merely reports the truth because he’s indifferent.

You Housing Prostitutes really need to get a life.


Bob Meyer October 18, 2012 at 4:35 pm

Housing is only a reflection of the bigger picture. People point out the DOW, but forget that it is climbing higher denominated in diminishing dollar values. So how have stock market investors done by the time they sell off. I guess that can also be said of any entity that is dollar denominated. What will you all use when the dollar finally is equal to zero?


Keith McCartney October 19, 2012 at 3:10 am

Mark, spot on as usual. Mainstream press uses quotes from representatives from the housing industry (spin merchants) and I am appalled reporters don’t take the time to dig into the real numbers. Keep up the great work and thanks for providing a guiding light. Excuse me now as I check with with my auto people to see if I really need that undercoating….


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