Case Shiller Housing Composite: Worst since 1991

Pretty amazing: This data release (May 2007) marks the 18th consecutive decline in growth, dating back to December 2005.

As the chart below shows, annual returns of the Case Shiller Composite now shows continued negative annual returns — an annual decline rate of 3.4%. These place the national market for real estate and single family homes at levels not seen since
the summer of 1991. (The 20-City annual decline rate is 2.8%).


“At a national level, declines in annual home price returns are showing no signs of a slowdown or turnaround,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Year-over-year price returns are continuing to either move deeper into negative territory or experience persistent diminishing returns. If there is any positive news in these numbers, it may be that in both May and April eight of the 20 markets showed positive monthly growth rates. This compares to only one or two of the 20 in the late winter and early spring. We need a few more months of data, however, to determine if this is the beginning of a national turnaround, since the national trend is still at a sharp deceleration.”

With Chicago now reporting negative annual returns, 15 of the 20 metro areas are now reporting negative annual price returns. In addition, 16 of the metro areas saw a decline in their annual growth rate compared to April’s data. Detroit continues to lead the metro areas in growth rate declines, down 11.1% from a year ago and has been in annual decline since May 2006 . . .

Pretty astonishing fall from the peak. And, based upon inventory levels and present sale rates, we are not remotely close to done.

Case Shiller Home Price Index

chart courtesy of Standard & Poors

Here is the break down via Tradition Financial Services, Inc. / TFS Derivatives Corp.

Index – May 2007





v May07

v May07

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Spring Numbers Bring Chilly Returns According to the S&P/Case-Shiller Home
Price Indices

S&P, July 31, 9:00 AM EST

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What's been said:

Discussions found on the web:
  1. Sherman McCoy commented on Jul 31

    That slope from 2006 on down is the steepest decent- or even ascent- on the curve. There ain’t no turn-around there.

    With +8% to +20% for all of 1998-2006, aren’t sustained declines of -5% to -10% for a few years entirely feasible? All the positive drivers for the real estate market in 1998-2006 have turned negative… in such a situation, can’t the market go down half as fast as its been going up?

    That seems entirely feasible, doesn’t it? And yet it would be devastating…

  2. johntron commented on Jul 31

    how bad will housing prices be during a recession.

    any thoughts on the nature of the next recession (whenever it is)?

    will this be the first real white-collar recession? Cost cutting will be a perfect excuse to ship even more back office/accounting/IT/etc. jobs offshore.

  3. techy2468 commented on Jul 31

    off shoring is not going to be as cost effective as it was in the past.

    there will be backlash against offshoring if US goes into recession and people are laid off.

  4. BettinaZ commented on Jul 31

    Jim Stack’s “Housing Bubble Bellwether Index” is now in freefall, after breaking a key support level. It continues to mirror the Internet index from 1995-2002; he overlays the two together on a graph. Scary stuff indeed.

  5. rex commented on Jul 31

    To Sherman’s point:
    House prices are unlikely to fall as much as they rose, because most sellers will just stay put and not sell. Home prices are sticky on the way down.
    You can live in a $750K 3-bedroom ranch that’s only worth $350K. But you can’t live in your Cisco stock.

  6. LAWMAN commented on Jul 31

    ….Home prices are sticky on the way down.
    You can live in a $750K 3-bedroom ranch that’s only worth $350K….

    …unless you have an ARM that is resetting, and you were planning to refi, and now you can’t because you are upside down in your house.

  7. Fred commented on Jul 31

    Smart money is buying this fear.

    Even in the subslime torched sector, smart money is coming in to buy in the (prior) “vacume” of bids….the latest examples are Sun Cap Partners buying FBR’s subprime division in Boca Raton, and Citadel buying Sowoods portfolio.

    The grave dancers will make a killing (eventually). But more importantly, they are setting basline values for this stuff.



    BR: What is your basis for saying the smart money is buying this?

  8. Lord commented on Jul 31

    I thought NY was still hot and we wouldn’t see any problems until the credit crunch worked its way through. It is headed south now too?

  9. lauteus commented on Jul 31

    At a generous 50k per year median income (per household) and a generous 230k median house price (fully financed since personal savings rate is low) it would leave an average household with approx. $350 (generous) per week to pay for ALL other expenses.

    If median income rises 20%, the weekly income for expenses goes to a ballpark $475 (PER HOUSEHOLD not including ANY other expenses)

    Conversely, a 20% decline in median home prices would result in slightly less than the $475 household/week expenditures. That would make the median house price 188k or so…

    I am assuming that $450-$500 per week will be able to pay for a household with 2.3 kids and pets and ALL other expenses (gas, insurance, food, and a tall stiff drink every now and then to cry into)

    I fully understand the implication of using statistical analysis based on medians in an arena with virtually endless variables… but for discussion’s sake, the median (or middle) is always a good place to start.

    If wages increase dramatically, so will interest rates, so will the house payment that we’re trying to squeeze out to begin with… If house prices fall dramatically, interest rates might fall as well (this is where it gets hairy since global expansion has been putting other inflationary pressures on the table). Either way, something will eventually have to move… Unless, of course, the atypical American is willing to sacrifice standard of living.

    Am I missing the Big Picture?

  10. wonderwood commented on Jul 31

    Yes, Laetus, you are forgetting student loans. Everyone in my generation is saddled with a huge amount of debt – my wife and I make payments of over $500 a month and that’s only paying the interest. I have a lot of successful peers, and none of us is even remotely considering buying a house. The baby boomers have simply pushed the market out of our reach. Talk to me in ten years.

  11. lauteus commented on Jul 31

    Ditto wonderwood…

    I’m sure we’re not alone.

    But, as a consolation prize, at least the corporations are bringing home the bacon. Now all we need is for the hedge funds to implode some pensions and we’ll (generations x, y, and ‘next’?) find out how one can fit a mountain of shi! into the bags we didn’t even know we are holding…

  12. David A. Porter commented on Jul 31


    I am surprised that we aren’t seeing more about what a great buyers market this is in real estate.

    Two cases in point:

    I recently visited Torch Lake in northern Michigan. Commonly sited as the third most beautiful lake in the world. Typically you can not buy real estate on this lake. IF something came up for sale, word of mouth would have it sold in hours. Today there are scores of homes on this lake for sale.

    I was also recently on the Big Island of Hawaii. What a “flipping” disaster. Flippers were buying condos here similar to Florida with no consideration that they would eventually have to pay for them and/or the bottom would eventually fall out.

    There are many prime real estate locations all over the map that are on sale. BIG TIME!

    The wise investors are quietly sneaking around and profiting from the folly of the herd.

  13. techy2468 commented on Jul 31

    David …i am not sure its yet a time for profit making….unless you think we are near to the bottom.

    of course a time will come to buy prime property for less and profit from it….and it will be the time when you can say “Affordable homes” for the average wage earner.

  14. lauteus commented on Jul 31

    David, are you implying you’re one of those daring falling dagger catchers?

    I agree, however, that there are plenty of deals out there. The problem is and has been (for almost 2 years) that the deals that are out there are typically the homes that are disheveled… typically mind you.

    On the other side of the fence, I sold a house in Jan. of 2006 (pure luck) and have been renting. And in trying to be responsible, I figure that all those condo and home flippers, not to mention the always noteworthy ARM’s holders, are going to eventually (from the sliding price numbers…probably soon) pull the properties off of the market (if they can afford to) and put them up for rent. I think the latter of this year and into next will show a nice bump in rental properties available. This whole supply-demand garbage that supposedly applies to a free market economy will then, theoretically at least, push rent prices down… either way, the median and sub-median income earners will have a place to live within their budget OR we end up like India (for example) and become bifurcated into the “haves” and “havenots”.

    What ever happened to the local real estate cheerleading blogger Nussbaum? I wonder if his book is selling well…

  15. commented on Jul 31

    Mortgage lender collapses; real estate prices continue to fall

    The big news today in housing is this, from Bloomberg:
    American Home Mortgage Investment Corp. shares plunged 89 percent after the lender said it doesnt have cash to fund new loans and may have to sell off assets.
    American Home caters t…

  16. HARM commented on Jul 31

    House prices are unlikely to fall as much as they rose, because most sellers will just stay put and not sell. Home prices are sticky on the way down.
    You can live in a $750K 3-bedroom ranch that’s only worth $350K. But you can’t live in your Cisco stock.

    Yes, house prices are “sticky” –mainly due to variable ARM-reset schedules (Credit-Suisse chart shows various loan tranches resetting in waves over the next 5 years) and the very long transaction times (can take over a year to go from NOD to REO sale).

    However, the rest of this statement is wishful thinking. Even the NAR admits that up to 40% of housing “demand” in the past couple of years was for investment/”vacation” houses, not owner-occupied shelter. And a substantial % of those house sales counted as “owner-occupied” are really flip-houses, gaming the “any 2 will do” RE capital gains loophole.

    Even your traditional owner-occupier (a rarity these days) will be forced to reconsider his options when faced with a resetting NINJA loan that constitutes 120% of his gross income. Many will simply mail in the keys and walk away.

  17. BettinaZ commented on Jul 31

    Rent prices going down? Oh great, then the government’s fictitious inflation numbers (inflation ex-inflation— I love that, Barry) will look even more fictitious…

  18. Winston Munn commented on Jul 31

    A couple of point to make: 1) median income is dropping – this makes home affordability even more difficult.

    Quote: from

    “Jul 31, 2007 — Contrary to popular belief, people make less money now than they did nearly five years ago. If this trend continues, the impact on housing and lending markets could be devastating.

    The median income of U.S. households has been deteriorating for some time, and by most projections, the decline in earnings is expected to continue. The most recent data available from the U.S. Census Bureau (a new report should be issued next month) shows an increase in poverty since the year 2000, as well as negative fluctuation in median incomes:

    Year Number of People in Poverty (In Millions)
    2000 31.6
    2001 32.9
    2002 34.6
    2003 35.9
    2004 37.0
    2005 37.0
    Year Median Household Income (2005 Dollars)
    2000 $47,599
    2001 $46,569
    2002 $46,036
    2003 $45,970
    2004 $45,817
    2005 $46,236 ”

    2) The fate of average American workers is irrelevant to those in power:

    From Agora Financials: Quote: ““I am writing to request that Congress raise the statutory debt limit as soon as possible,” wrote Treasury Secretary Hank Paulson yesterday in a letter to Congress. In a letter to Sen. Reid, Paulson urged lawmakers to heighten the debt ceiling before we pass the $9 trillion mark in October.

    “And for what?” you might ask… a rainy day fund? The war on terror? Entitlement programs? The coming energy crisis? No… Paulson seeks more debt allowance so that the U.S. government can borrow money to pay outstanding bills. The money Congress grants him (which it surely will) has already been spent.

    Finding a way to pay U.S. bills without indebting this country more “would create unnecessary uncertainty for the financial markets and result in costs to the government,” said Paulson. Right. So it’s better to go deeper into debt than pay your bills. Where did this idea come from?”

    When you are running a Ponzi finance scheme, you can’t pay your bills – you have to go deeper into debt – that’s the way it works.

    “Finding a way to pay…bills without indebting….more ‘would cause unnecessary uncertainty for the financial markets.'”

    Unnecessary uncertainty? Like Bear Stearns and American Home Mortgage?

  19. a guy called john commented on Jul 31

    re: torch lake and hawaii

    Who is left to buy houses in these areas anymore?

    I mean, old money in Michigan can only have so many weekend homes. If it could afford one in the last 5 years, it bought one. If not in Torch Lake, then Traverse or Muskegon or wherever. (FD: I’m pulling my Mich. weekend destinations out of my rectum.)

    And if, for some strange reason, you had enough money to buy a second home in the last 5 years and didn’t do so, the chances are you’re so f’n conservative, no way you are gonna go buy one 6-12 months into the worst housing market since the great depression.

  20. Stuart commented on Jul 31

    Anybody wanna bet that this week’s NFP figures will still show a net GAIN in construction jobs.

  21. fake skeptics, astroturf groups commented on Aug 1


    >> off shoring is not going to be as cost
    >> effective as it was in the past.

    >> there will be backlash against offshoring
    >> if US goes into recession and people are
    >> laid off.

    There’s already been a backlash. But, the situation would have to become far, far worse to create a backlash strong enough to actually do anything. Did the backlash against outsourcing manufacturing during the 80s make a difference?

    I agree with Mr. Munn’s statement: The fate of average American workers is irrelevant to those in power.

  22. ross perot was right commented on Aug 1

    Rather than require trading partners to improve their environmental and labor laws (or vary the import tariff according to degree of compliance), we encouraged Mexico and now China to dump mercury into the sea — enjoy your fish, Mr. Mad Hatter? — and pollution dust into our air.

    Why didn’t you hear the Giant Sucking Sound soon after Ross predicted it? It was drowned out at the time by the internet boom. But, after the boom din died in March 2000, I heard the Giant Sucking Sound loud and clear. Now, you can see it, smell it, and taste it, too.

  23. David Porter commented on Aug 1


    I guess I didn’t make myself very clear. In my comment above about a buyers market I was speaking about the second home market. This market was hit significantly harder than the primary residential market. As “as guy called John” above states, “he needs to pull his property out of his rectum!”?

    Sorry to hear about your situation John, but that is exactly my point. Everyone (the herd) was buying at exactly the wrong time. Now the herd is saying, “don’t buy” which is generally the best time to buy.

    In response to the “catch the falling knife” comment. I am not and never will be a flipper. If I buy another second home, it would be with the idea of keeping it for a long period of time.

    In regards to Hawaii, where on earth can you get what Hawaii has to offer?????? There is a fire sale happening in the most beautiful place on earth…an oh yeah…it is in the United States. I don’t have to go to Mexico and pray they don’t take my home away.

    I love your blog Barry!

  24. a guy called john commented on Aug 3

    how many people are there with a clean credit, cash and desire to buy into this…today? go to a library in any one of the cities you mention (nice excuse to go to hawaii), find the newspaper archive and take a look at 2004-2006 real estate transactions. hell of a lot of them, aren’t there. then, go for a drive and look at the signs posted (i’ve seen ’em all around lake geneva, wi).

    sure you’ll find someone who’ll sell today at a price that, depending on the location, 6-18 months ago would’ve made you jump up and down. but 6 months hence, will you think to yourself, “damn, i coulda waited til the dead of winter and saved myself xyz%”? and even if they don’t, do you really believe that prices are gonna come storming back next year?

    besides, where are today’s buyers going to come from anway? after the last two (hell, five) years, who is left that has the money, the credit score that is now required, and the *desire* to own a second home that doesn’t already own one?

    okay, okay…you fit all three criteria. but look around — are you the norm or the anomaly?

  25. Fundmastery Blog commented on Aug 3

    Homes Prices 18-MonthDecline

    Speaking of corrections in the stock market, we also are reminded that home prices are heading down too.
    Barry Ritholtz posted this excerpt from Standard Poors report on its index of single family home prices:

    “At a nation…

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