Continuation of Negative Annual Returns in Housing

It seems that today is Housing day at the Big Picture: First, we looked at UK MEW; Then, we saw that great NYT chart;

And, since its the last Tuesday of the month, its Case Shiller time: Ouch!

Case Shiller Housing Index July 2007


Here’s the excerpt:

"Data through July released today by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices, the leading measure of U.S. home prices, shows a continuation of negative annual returns in the 10-City Composite and the 20-City Composite, as well as 15 of the 20 metro area indices. Both composite indices have registered negative annual growth rates since the beginning of the year. In addition, both indices rate of decline has become larger in each of the seven months from January through July.

The chart above, depicting the annual returns of the 10-City Composite and the 20-City Composite, shows the 10-City Composite was down 4.5% versus July of 2006, while the 20-City Composite was down 3.9% over the same time period.

“The decline in home prices clearly continued into the summer months,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “The year-over-year decline reported for the 10-City Composite is the lowest since July 1991. The lowest annual decline in this Index, which dates back to January 1987, was -6.3%, which was reported in April 1991. The further deceleration in prices is still apparent across the majority of regions, with 16 of the 20 metro areas showing a drop in their annual growth rate from what was reported in June.”

Bloomberg reported:

"Home prices in 20 U.S. metropolitan
areas fell the most on record in July, indicating the threat to
consumer spending was rising even before credit markets seized
up in August
, a private survey showed today.         

Values dropped 3.9 percent in the 12 months through July,
steeper than the 3.4 percent decrease in June, according to the
S&P/Case-Shiller home-price index. The index declined in January
for the first time since the group started the measure in 2001,
and has receded every month since then.         

Stricter lending standards and reduced demand are
prolonging the housing slump, now entering its third year.
Prices may continue to fall as homes stay on the market longer,
economists said. Diminished housing wealth may spur households
to pare spending, hurting economic growth." (emphasis added)         

No bottom in sight anytime soon. My best guess is late 2008 to 2009 . . . unless we have a recession. Than, all bets are off.

Note that all 10 regions covered are now in the red, and for the most part, rather deeply; Only Chicago and Denver are off by less than 1%.


via TFS Derivatives

Summer Swoon Evident in the S&P/Case-Shiller® Home Price Indices
Sep 25, 2007 09:00 AM EST PDF

S&P/Case-Shiller Home Price Index Falls 3.9% in July
Courtney Schlisserman
Bloomberg, Sept. 25 2007

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Sep 25

    >>unless we have a recession. >>

    have??? we’re in it already. We will not get any confirmation from any of the gov’t issued indicators for that would be contrary to the goal of propping the market up.

    Way too much noise in this market…..Look at the recently released Consumer confidence #’s… revised August upwards (no surprise there) so that September’s don’t look worse than they are.

    And on cue there go the SPY’s


  2. Ross commented on Sep 25

    Agree with M S. We have been in a recession since Spring. I expect we will be told about this by the ‘authorities’ about one quarter before it ends.

  3. wally commented on Sep 25

    Real estate deflation… isn’t that how it started in Japan?

  4. Stuart commented on Sep 25

    Don’t worry everybody. Ara Hovanian says we’re very near the bottom now. yes, that was sarcasm.

  5. Peter B commented on Sep 25

    Aug Existing Home Sales totaled 5.5mm, a touch more than expected but the lowest since Sept ’02. But, the Inventory to Sales ratio rose to 10 months up from 9.5 in July, to the highest since 1991. The median home price fell 1.8% sequentially and is up .2% y/o/y. The issues in housing is no surprise to any of us with the only question being how far prices need to fall in order to generate the demand to lower high inventories. Sept Consumer Confidence fell below 100 for the 1st time since Nov ’05. The survey period however DOESN’T include the Fed rate cut. Those that said jobs were plentiful fell to the lowest since Nov ’06 and jobs were hard to get rose to the highest also since Nov ’06. Those that plan to buy a home within 6 mo’s fell to the lowest since Nov ’04.

  6. UrbanDigs commented on Sep 25

    How can you even start to talk about predicting a housing bottom when we haven’t even seen a significant effect on the US economy as a direct result of the housing slump?

    What happens when consumer spending starts to slow, stocks fall, and we enter a recession? Then the housing market will bottom?

    I dont get it.

  7. Gary commented on Sep 25

    Sorry folks if we were in a recession the market would be down big time. The meager little 10% correction is suggesting that the subprime debacle is not going to bring on a bear market. By now the subprime mess has been discounted. It’s going to take something much bigger to stop the market. I wouldn’t be looking for any more fuel from subprime at this point. The COT reports have been telling us all through the decline that this was a buying opportunity not the start of something serious.

  8. F. Frederson commented on Sep 25

    Even without a recession, the bottom in existing home prices won’t come until 2011 or so in bubbly markets. Prices are just that much out of line with affordability.

  9. Stuart commented on Sep 25

    Schiller says prices are falling. The NAR says he’s full of it as the median price rose yoy.

    Sept. 25 (Bloomberg) — Sales of previously owned U.S. homes fell in August to a five-year low, extending a slump that threatens to stall economic growth.

    Purchases declined 4.3 percent, less than forecast, to an annual rate of 5.5 million, the National Association of Realtors said in Washington. Sales dropped 13 percent compared with a year earlier and median home prices rose 0.2 percent to $224,500.

  10. The Financial Philosopher commented on Sep 25

    The media “noise” over housing and credit is so loud that it seems time is due to look at something else. The “financial crisis” was easily foreseeable. With every newspaper, magazine, and financial blog covering it, wouldn’t a contrarian look at the noise as a signal that the worst could be over? It should at least be a signal for intelligent minds to start talking about something else…

  11. michael schumacher commented on Sep 25

    Well the COT report does’nt factor in any of the crap that is going on in the market under all of our noses. We’ve had months of inflationary data get trumped by a jobs report that (this time) showed the reality of what is going on. I bet that the jobs report going forward will be back to “normal” showing all the wonderful effects of the rate cut.

    Goldman Sachs is doing the bidding for the Chinese as all one need to do is to look at the breakdown of Goldman’s “earnings”. GS did great with it’s own money (Chinese) but not so good with your money…..funny how that works out….

    GS’s automated trading programs made up almost 40% (and it’s most likely much higher) of it’s rev. for the qtr. keep in mind that they also sold a power company at a huge profit……

    Now remember how the S&P got walked up 31 handles in about 30 minutes??? Contrast that with the amount of rev earned by GS in “trading” and a picture emerges. Based on it’s own numbers it appears that GS was right on EVERY SINGLE TRADE USING IT”S OWN MONEY. how cheeky is that if you are a GS customer and lost money last Q???

    They may be committed (via the COT) but it’s not without ALOT of help that is not at all factored into that report.

    COT is an indicator that can and will be used to convince retail that it is different this time….just like most tech indicators they have become virtually worthless in this present environment.


  12. Justin commented on Sep 25

    There has to be more negative jobs numbers coming, because of the amount of cars parked outside of the bars I pass during the day…lol

  13. Gary commented on Sep 25

    There are too many billions of dollars in the futures market for traders to use them as a decoy. I don’t care how much money you control you’re not going to “throw away” 3 or 4 billion dollars just to decive the little guy. No the COT’s have been producing great returns for the last 20 years and I suspect they will continue to do so for the next 20. Most people don’t have the discipline to trade them because they are controlled by their emotions. They tend to be whipsawed by the news. Is it any wonder that the market has been going up as horrible news keeps comming out? The market has already discounted the subprime mess and is now looking ahead 6-9 months. So far it likes what it’s seeing. I post the COT results on the SMT every week. Maybe you should take a little closer look before you discredit it.

  14. Peter B commented on Sep 25

    The International Council of Shopping Centers (ICSC) said today in its weekly data that sales fell 1% compared with last week and is the largest back to back drop since Dec 2, ’06. In response, they lowered their Sept estimate to a growth rate range of 2-2.5% from 2.5% last week.

  15. TexasHippie commented on Sep 25

    Does anyone else think the Fed is using dollar devaluation as a tool to bring down housing prices? Assuming we get any kind of wage inflation we may see houses becoming more affordable without stubborn sellers having to reduce their sale price. The moral hazard issue goes away if the mortgage industry is stuck with loans returning less than inflation.

  16. stormrunner commented on Sep 25


    aside from the financial sector bailout I imagine the FED believes this could be a secondary benefit though yeild spreads are rising the long bond is “going to other way” short term this will not help borrowers in a market with tightening lending standards. In the long term paying your mortgage in depreciated dollars always helps if the inflation also finds its way into wages. The recent economic recovery did offer precious little help in this regard as inflation adjust wages fell. So even though nominal wages are up which is what matters, if Food, Healthcare, Fuel, Education, Services, are all increasing at a rate that exceeds your wage increase in balance you are worse off.

  17. wally commented on Sep 25

    “Assuming we get any kind of wage inflation we may see houses becoming more affordable”

    Problem is, we haven’t seen any.

  18. Bonghiteric commented on Sep 25

    I caught Ara Hovnanian in a Bloomberg interview this weekend. When asked if he was surprised by the 50Bps cut his response indicated (I’m paraphrasing) that he wasn’t. He was mildly surprised that it was 50bps instead of 25bps but that he expected a cut. He expected this because a week or so prior homebuilders had met with the Fed to plead their case. The squeaky wheel clearly got the grease.

  19. michael schumacher commented on Sep 25

    >>Discounted the subprime mess>>

    That’s where the folly lies….it’s not about sub-prime as much as it is not a credit crisis.

    It’s about protecting profit margins on deals going forward. If you are a big bank you just got protection on your net margins on all of your deals that you did’nt have before last tuesday. The market spoke to the noise that the brokers have created to sell it as a credit “crisis”. When the CEO of Toll says “our boy got it right” who do you think benefits from that??? Certainly not us middle class folks who saw about a 3.5% increase in all our consumables virtually overnight……

    Was it a coincidence that bonds that were supposedly locked up suddenly were unlocked by RH Donneley approx. 2 hours after the fed cut rates? Not at all…

    I’m not discounting the COT I am merely saying that it has alot of help that is not factored into ANY of it’s own indications.

    The economy sucks right now…plain and simple. We have had months of inflationary data show us that…..the Fed choose to act on one month of data under the guise of “helping us out”. The only thing the Fed did was to “help” us spend more of a shrinking asset to buy less goods that are continuously getting more expensive.

    That is help I do not want or need.


  20. PeterR commented on Sep 25

    Interesting IMO that the 1990 bottom in this index was the beginning of a ten year equity bull market.


    New bottom now forming?

    Are Helicopter Ben and his boss ready to lose the 2008 elections for the Republicans?

    “I don’t think so . . . ”

  21. techy2468 commented on Sep 25

    guys arnt we getting too bearish?? is the world really coming to an end??

    we do not have a reliable data any most indicators, so why should we always beleive in one extreme scenario?

    i dont agree with the bulls, infact they usually do not have an argument other than rhetorics.

    if we look are actual employment in our cities what do we see??… our friends and families?? how many are on verge of losing jobs?? (in my case none, everyone doing great….IT has seen almost 15% wage increase this year after being in the dumps for six years)

    then look at consumer spending, has it really slowed down?? are the shops really empty?? are people not buying new cars??
    I am not sure about this since i dont visit malls much, and since its fall its very hard to tell about new cars.

    consumer debt?? isnt it possible that the data about consumer drowing in debt is off by a huge factor…what is most consumers are not getting hammered by debt??

    the negatives as i see:

    Banks/financials…..we will see a big job loss as huge numbers are slowly going to disappear from balancesheets and income

    mortgage/housing related….we already know the fate of this

    technology: as long as business spending does not freeze due to fear of recession, a great time to be in technology….since aging systems and applications need replacement

    healthcare: same old same old….steady increase

    ok i stop my amateur analysis and give space to experts…

  22. Estragon commented on Sep 25

    TexasHippie – “The moral hazard issue goes away if the mortgage industry is stuck with loans returning less than inflation”

    The argument is sort of circular. If inflation, (especially wage inflation) appears to be accelerating, rates and risk premia are almost certain to rise, which will constipate mortgage markets further.

    Your point about inflating the problem away is valid though. House prices (and wages) are quite sticky in nominal terms on the downside, but less so in relative terms. Inflation allows the downside to happen in less visible relative terms. Like morphine though, the dosage is critical. Too little, and the patient feels pain. Too much and the patient dies.

  23. michael schumacher commented on Sep 25


    The tech argument is worn out and tired….we have all heard that CAPEX will save us from a recession time and time again. Tell me this: IF CAPEX were truly an issue then why have these companies not taken advantage of the historically low interest rates to begin purchasing?? IF they have not done it by now……it’s not going to happen as all they need to see is a dollar that consistently loosing value that allows them to reap the benefit of the imbalances created in the other markets due to currency “issues”. Take a look at most earnings releases and you’ll see a large part of the earnings were from “foreign currency transactions”. What The FEd does’nt tell you is that US based companies want the dollar low so that they can continue to make “earnings” based on currency fluctuations. You will also see how many stock buybacks are being done INSTEAD of investing in infrastructure to grow a business organically.

    WHat you are seeing is the quick easy way to inflate stock prices via a sinking dollar and the CONTINUED availability of cheap easy money applied to share buybacks in a large part of the market.

    CAPEX is dead and has been replaced with buybacks and currency differences.


  24. michael schumacher commented on Sep 25


    has it crossed your mind that regardless of which party you are in would you even want to be president with the current fiscal “issues” that are set to get worse as the year ends.

    If the current trend is allowed to continue, the bailing out, pandering to Wall St., etc. there might not be much to preside over.

    Just a thought…


  25. PeterR commented on Sep 25


    Yes, not much of a time to be president, but the assumption “set to get worse” it seems to me ignores the likelihood that the administration will do all it can (“Vee have vays of dealing with these things . . “) to prevent the worst outcome before the 2008 election.

    As far-fetched as The Plunge Protection Team seems, are we so sure about all the efforts taken under the table to stabilize the markets? Not to mention the things we DO know about (recent Fed cuts, and probably more to come, etc.).

    Yes, things eventually will revert to the mean after these hidden actions, but not IMO until after the election.

    Just curious, when you look at the chart above, do you see at least the potential for a bottom here, simply from a chartist perspective?

    Next Monday is a new quarter, so we should know soon enough.


  26. Short Man commented on Sep 25

    VIX is getting nice and low. Looks to have settled well below 20 as of today. If it gets down towards 16 or so then it will set up for some nice fireworks in October.

    Markets can only ignore bad news for so long given the next earnings season is just about here. They’ll be some decent evidence of the consumer squeeze in the Q3 figures.

  27. New Yorker commented on Sep 25

    Well Short Man, given that price increases peaked from a 12% high 18 years before the current spike, I’d say there is a good chance that this “correction” has a chance to plunge even lower than -7%.

  28. toady commented on Sep 25

    2008-2009 is when to start looking for the bottom and maybe to start shopping. Housing prices are sticky on the way down.

  29. Francois Theberge commented on Sep 26

    “Ara Hovanian says we’re very near the bottom now. yes, that was sarcasm.”

    It is not sarcasm: we’re near the bottom of the edge of the plateau.

    After that, the cliiiiiiiiiiiiiiiiiiiiiiiiiiiiiifff!


  30. David Gaffen commented on Sep 26

    How Far Can Homebuilders Fall?

    The stock charts of the nation’s largest home builders look insanely terrific — if they were ski slopes. Standard Pacific is off 77% year-to-date; Hovnanian Enterprises is off 68%; Beazer has dropped 82%, and the SPDRs Homebuilders ETF is down 42% on the year.

    Stock Yearly Change
    Toll Brothers -38%
    DR Horton -50%
    Centex -54%
    Lennar -56%
    Hovnanian -68%
    Standard Pacific -77%
    Beazer -82%

    Wanna know the frightening thought in all of this? These stocks may have further to fall, despite their ridiculously low price-to-earnings ratios and the severe drops already experienced throughout 2007. Analysts say the still-high levels of unsold inventories, unfavorable credit market conditions and worsening economy all spells trouble for this group, so what may look like a cheap bargain in the market now may be anything but for a bit longer.’s Antony Currie notes that the book values of the five largest home builders have fallen by about 15%. “But that still leaves all of them with assets sporting higher valuations than before the excesses of the housing boom kicked in at the start of 2005,” he writes.

    Mr. Currie says that if builder stocks were to repeat the early 1990s slump, share prices would have to drop by half again, and that’s possible with the declining value of land and the sharp discounts many homebuilders are offering to clear inventory. They’ve got a lot of competition, though, as the National Association of Realtors yesterday said inventories increased to a supply of 10 months, the highest level in 18 years.

    Meantime, as investors continue to worry about the prospects of a recession, they’re increasing their concerns about the possibility that one or more of the home construction companies defaults on their debt. According to Markit, credit-default swaps (which measure how much investors are willing to spend to protect against defaults) continue to widen out for the builders.

    Swaps for protection against a default by Standard Pacific have risen to 955 basis points, which means investors are willing to pay $955,000 to protect $10 million in bonds — nearly 10% of the cost of the bonds in the first place. Similar swaps for Hovnanian are at 842 basis points and Lennar is at 312 basis points (the overall high-yield index is at 335 basis points, according to Markit).

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