The S&P/Case Shiller® composite index (graph here) for the month of June was released today.
"'For the second month in a row, we’re seeing some positive signs,' says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. 'The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, as well as the charts, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness.'"
60 comments:
I'm sure it's just a coincidence that practically every city is rebounding in price above fundamentally supported levels after the $8000 buyers bribe and foreclosure moratoriums. Surely the biggest govt effort ever to temporarily increase home values and re-inflate the bubble has no bearing on this wonderful news. I wonder what % of the people that follow housing market news believe this rubbish is sustainable.
2.85% MoM. Wow. We've rolled back our "gains" (in affordability) to December 2008.
Kevin,
Agreed. Remember when the 8k first was announced and I claimed it would have more than an 1 to 1 impact and everyone poo-poo'd me? Okay so my factor of 5 impact (based on the 8k contributing to a 20% downpayment) hasn't come to pass. And I didn't anticipate rates staying this low for this long, which has compounded the impact. But I still say people are spending $30k more than they would otherwise have to, in order to get $8k back.
2.85% ! That annualizes to 36%*! Buy now or be priced out forever!
* I think
Cara, just wait until they make it a $15k bribe available to everybody. We'll see a whole new bubble again. It is f*cking disgusting. I am so mad that our tax dollars are being used to poison the well.
Congrats to all the bubble buyers, your paid-for representatives in congress are going to give you your bubble equity back, at the cost of future homebuyers and tax payers. I really hope you enjoy your undeserved wealth. Market manipulation shall reward the stupid and punish the prudent.
kevin,
I don't think $15k for everybody is going to happen. And pulling future buyers forward can only work for so long. Cash-for-clunkers waned before it ended, this will wane eventually too.
Novawatcher,
LOL. If "annualized" means 1.0285 each month then it would be 40%. Good thing there's seasonality to help avoid this calamity... Maybe this is what buyers every summer of the bubble really thought would happen though...
Cara, I agree that it doesn't have much "pull" left in terms of getting the fence-sitters into the market to eat up what is already artificially scarce supply. That'll wane. But I'm sure somebody in the industry or NAR realizes this, and will get the dummies in congress to allow this for non first-time buyers, and maybe even (sigh) investors. While I could be a recipient as a non first time buyer, I know that whatever the bribe is, it won't make up for how much more I'd have to pay for the house. It makes my blood boil, and I wish people would see what long term damage this is doing to our economy. All it does is trap more people underwater.
And pulling future buyers forward can only work for so long.
Cara,
Agreed. What concerns me is the 'assumption' that massive unprecedented deficit spending will work in the long run, because bribes will have done the job to bridge the gap. It just seems like a lot of assuming to me.
"'It was government spending that revived the sick man of Europe,' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. 'The domestic cash-for-clunkers scheme revived private consumption while global stimulus packages helped boost net exports. The question now is whether the recovery will be sustained once the programs run out'."
The trillion dollar question.
kevin,
Last time around the Senate asked for $15k for everyone and the House pulled it back to $8k for first timers with income limitations. Given that the Government Accountability Office has already made foreclosure and underwater by district maps, I expect they'll make $8k usage by district maps soon. The House is much more accountable to it's consituents, and I hope that they will keep their spine and balk at NAR and NAHB's demands.
(I have such faith)
harriet,
The trillion dollar question indeed. I would like the new $8k to have an explicit phase out clause. But whether it does or not doesn't answer the question of whether the economy can right itself sufficiently before the bridge runs out. (Metaphorical difficulties here) W shaped recession here we come if it doesn't work.
Cara, while unlike you I have very little faith, nonetheless even if that courage did exist, NAR and their evil counterparts are making this the absolute number one priority. I don't think they have ever wanted anything so badly, and they have always gotten their way before.
My hatred for this organization is obviously not something I keep to myself. I just really wish there was some sort of active counter-propaganda out there to educate the masses as to this incredible disinformation campaign they have been steering all these years. Patrick.net is a good starter, but someone needs to do a "Super-Size Me" type of documentary that rips this lobby a new one. People pay so much of their money for housing, and this group is nothing more than a legalized Soprano crime family hacking away at people's fortunes to get their cut. They exist only because an antiquated industry has fossilized itself and successfully pulled the wool over people's eyes.
Sorry for the rant, but this is the source of these "programs" enacted by their puppets in congress, and I so look forward to NAR's eventual demise.
Let's look at what happened during our region's last bubble.
January 1987's number is 64.11. It explodes up to 93.18 by February 1990. Then we see negative Mom from Mar 1990 to Apr 1991 (and Apr 1991 is barely a mere -0.03%).
Then positive MoM May 91-July 91, then negative MoM Aug 91-Feb 92 (w/ positive hiccup Nov 91), then positive MoM Mar 92-June 92, then mostly negative MoM July 92-May 93, then positive MoM June 93-Aug 93, then negative MoM Sept 93-Feb 94, then positive MoM Mar 94-Jul 94, then negative MoM Aug 94-Mar 95, then positive Apr 95-Aug 95, then negative Sept 95-Mar 96, then positive Apr 96-Aug 96, then negative Sept 96-Apr 97, then positive May 97-Aug 97, then negative Sept 97-Feb 98.
Then on March 1998 we see almost uniformly positive gains (and in many cases huge gains) until May 2006. And everyone knows the rest.
Anyways, the point of that history is that we may be entering the phase where late spring/summer months are positive MoM but then we have a dead housing market in the fall/winter. During this period Case Shiller for the region was ~88 and the summer gains were always offset by the winter losses.
"During this period Case Shiller for the region was ~88 and the summer gains were always offset by the winter losses."
Put another way, if history is any guide, the bottom is in, but the "recovery" is still years away.
Remember also that Case-Shiller just look at home sales. So things still feel more expensive than C-S because there are so many delusional listings. When 95% of homes are priced to go under contract in 30-60 days instead of 180-360 days (or never) it will feel more affordable.
The Anonymous,
Yes although one monkey wrench that will be difficult for a flat recovery is that in the 1991-98 period interest rates were trending down, now they are almost certainly trending up:
30-Year Fixed-Rate Mortgages Since 1971 - Freddie Mac
TBW, while I'm sure you put good effort in typing that 3rd paragraph, it is hurting my brain. I think I'm hardwired to interpret data from columns and rows, not paragraphs.
That said, I wouldn't compare this to previous market patterns since such a powerful hand is at play now. Basically a very temporary bubble reinflation. Don't know what gimmick they can replace this with though, since the buyer pool will be totally absorbed at some point in the near future.
tbw,
thanks for the dose of reality.
Keep in mind that this spring's rally was aided by manipulations and you get even more dire predictions.
"Remember also that Case-Shiller just look at home sales. So things still feel more expensive than C-S because there are so many delusional listings. When 95% of homes are priced to go under contract in 30-60 days instead of 180-360 days (or never) it will feel more affordable. "
Ah, that's why it feels so much more like a bottom to me. Most houses listed in 22015 do go under contract in ~60 days. (average days on market of solds is 56, median ~30).
Ratio-wise we've given up almost exactly as much gains as we did last time if not more
64 -> 93 = 45% gain
-> 88 = 5.4% loss
93 -> 250 = 268% gain,
-> 166 = 33% loss
5.4/45 = .12 33/268 = .12
(I may be doing the wrong ratios... a shared denominator would be better)
So if our two bubbles are scale models of each other then we're done. (rising rates, market manipulation, and the extent of Heloc abuse and underwater owners may make the two secularly different from one another).
Here's a WaPo article on rent concessions in apartment buildings, it's an interesting read. There's also one today on the giant development project out in Loudoun that fell apart.
Concessions Help Upscale Buildings Fill Apartments
p.s.
I don't actually believe what I just wrote. There's nothing sacrosanct about the level at which the long-flat period started last time, and no reason to expect that it should scale so simply. It's more likely to be a cute coincidence that looks good for now than something with actual predictive power.
kevin,
Okay shorter version is that in the past for a period of about seven years we had hot late spring/summer markets and cold fall/winter markets and Case-Shiller barely budged.
Cara,
Correct. I think anywhere where you lack head scratcher listings is either at or near bottom. I say near bottom because I still think higher interest rates/$8k gone might bring some more pain to those markets (as it will to all markets.) So in the part of Burke you look in it seems like few sellers are delusional. In Arlington many sellers are still a little crazy.
Eldon,
That article embodies why I'm so insulted by my landlord who wants a lot more money. Not sure what planet she spends most of her time on.
But I think I was itching to move even if she gave me a reasonable offer and this just gives me the motivation to deal with the pain of hiring movers and packing up my items (since the cost and time cost are more than paid for in saved rent.)
The article also forecasts falling rent, then flat rents until 2012 when they go back up. More downward pressure on homes.
I need some help. I am having a hard time understanding what is and what isn't market manipulation by the government.
Creation of Fannie Mae and Freddie Mac
Home mortgage interest deduction
$250k/$500k capital gains exclusion
Fed purchase of MBS - recently
Creation of FHA
GI bill with 0% downpayments
Deduction of points for home purchase and refinance
I'm sure there are more. Feel free to post intelligence insults at will.
What's North Dakota's Secret?
Forbes interview of North Dakota Governor on state's impressive economic record (one of two states to be running a surplus). Contrast that with Virginia which is now dealing with a $1.5 billion deficit in FY 2010 (up $300 million from the previous estimate of $1.2 billion).
Robert,
All are gov't manipulation and they all push home prices upward because they expand the pool of potential buyers.
We all agree it's probably inevitable that the gov't will be manipulating the housing market to some extent. We may just have the home mortgage deduction forever (look at how hard it is to get rid of the health care deduction despite the fact that it's outdated and modern Americans who hold many jobs would prefer to have more portability in health plans).
But I don't think anyone thinks they are going to keep interest rates this low forever. You previously admitted the FOMC will likely raise the target rate by early 2010.
So I am differentating between gov't housing policies that they plan to have forever and those that are temporary. As you know there are economic conditions where rock bottom interest rates would result in sky high inflation. We can only do these interest rates now because inflation is not even a real concern at the moment.
Robert
Those are indeed all manipulation.
Did you read my Vermont link? It's very idyllic and positive. But regulation itself could also be considered manipulation.
You don't think keeping the Fed funds rate at 0% is extraordinary? Or allowing Fannie and Freddie to continue to buy mortgages when they are technically bankrupt? Or the $8k incentive? These seem pretty extraordinary and short-term in time compared to the other manipulations you listed.
Although I for one put some blame on the change in the capital gains law for the bubble rise. It encourgaged long-time owners to trade up and flip with ease (as opposed to requiring immediate re-investment into a house).
All the longer term manipulations have long since been baked into the prices. Removing them would be catastrophic. Perhaps this is your point? That the short term ones will become irrevocable?
Robert-
It is all market manipulation. The government does really try and push housing on people. It is slightly absurd all of the benefits that the government gives home owners.
I think the current manipulation is slightly more than in the past, but you are right that this is by no means the first time the feds manipulated the market.
Washington DC seasonally adjusted tiered price indices, (low, mid, high, aggragate)
2008 12 172.94 173.56 178.7 176.45
2009 1 162.68 170.3 177.83 173.59
2009 2 160.4 168.12 173.58 169.95
2009 3 160.84 164.91 170.68 167.78
2009 4 164.4 165.96 169.5 168.15
2009 5 161.29 166.19 170.6 169.29
2009 6 164.94 170.52 171.84 173.05
Not seasonally adjusted:
2008 12 171.96 172.15 177.37 175.56
2009 1 161.4 168.48 175.43 171.97
2009 2 158.95 165.5 170.6 168.04
2009 3 159.08 162.43 167.91 165.92
2009 4 163.81 164.77 168.1 167.3
2009 5 161.06 166.78 170.98 169.49
2009 6 165.63 172.19 173.82 174.32
What we see here is that not seasonally adjusted, all tiers are up, but by decreasing percentages with increasing price.
(Under $273522) ($273522 - $426180) (Over $426180) (Overall Market) Tier breakpoints are as of Jun-2009
This makes a little more sense than May's numbers where the lowest tier was down but the middle one was up.
News from the one segment of the federal workforce that has to operate like an actual business:
The Postal Service is offering up to $450 million to employees if they will agree to quit their jobs, it announced Tuesday, the latest effort by the financially struggling agency to reduce its costs amid a sharp decline in mail volume.
Up to 30,000 employees can take the $15,000 buyout, which the Postal Service describes as a way to save up to $500 million in savings during the next fiscal year, which begins in October.
Article
I do not expect many takers unless they up the offer given how long many would be unemployed in this job market.
The other thing of note is the change in mix. The break-point between middle and upper tier has been moving up from $408k in March to $466k in June ($488k in May), which means there have been more high end sales relative to low end sales, such that the thirds split up that way...
So, middle and upper tier volume are definitely up. Which means watching the median now is definitely fraught. It's the same thing as following the 1/3 and 2/3 cutoffs. (although the 1/3 cutoff hasn't moved as much.) We all knew this was going to be the case, but it's happening now.
*Claps for Kevin*...
North Dakota is one of the states that gets way more tax dollars back from the fed govt than it sends out. (I think NY and NJ are the biggest screwed-over states.) So I guess we are all funding its great economy.
Meshell,
A disproportionate share of federal appropriations does not guarantee a strong economy. See West Virginia for an example. Senator Byrd lavished his state with federal goodies but it's still pretty weak.
tbw, cara, housebuyer,
Agree, government manipulation is extraordinary right now. But, I expect it to stay in place until it is no longer needed.
So far Bernanke has been right about the Fed not needing to purchase additional treasuries. Prices are higher than when he made the announcement. I would think that is the strategy for MBS purchases along with the $8k incentive. How do you know when it is time to quit stimulating? I'm not smart enough to answer that.
Robert
Additionally one of the Fed members has stated that equities haven't priced in how long the Fed truly intends to keep rates down.
(dig through Calculated Risk if you want a reference)
They're going to be using inflation to help people and banks get out from underwater.
Deflation then inflation, just as contrarian says. Though hopefully not to the extent he thinks will happen.
tbw, that's true, but just think how much worse off WV would be without Sen Byrd.
Robert, this is for you.
http://finance.yahoo.com/news/Americas-Best-Places-to-Find-usnews-2558021933.html?x=0&.v=1
"They're going to be using inflation to help people and banks get out from underwater."
I think this is the only real way out of the mess we're in and it's such a massive slap in the face to the financially prudent. I guess we're sacrificing for our country and we'll be memorialized in 50 years when people look back and realize what brought us out of this disaster.
Odd the way Arlington is broken out that way.
Meshell,
I take exception to that article arguing we have an excellent public transit system. Especially in recent months. I would say pre-2005 or somewhere around then it was excellent and since then it's been decaying and spotty. It's certainly better than MARTA I suppose but that's not saying much.
I don't think it is fair to say that USPS has to operate like a business. More like a business with one hand tied behind its back?
Sorry, TBW, if Yahoo! news says it, it MUST be true.
Additionally one of the Fed members has stated that equities haven't priced in how long the Fed truly intends to keep rates down.
Cara, it is a dangerous game to try to figure what is and what isn't priced into the stock market.
Robert,
That wasn't my point. My point was that this guy who will soon be voting on the Fed rates committee says that rates are going to stay low longer than people buying stock (i.e. everyone) expects.
I wouldn't even know how to price that in. Or what that would imply.
Cara,
Okay, that is still confusing. Is he or is he not giving his opinion on current stock prices?
Eldon,
If you really believe inflation is a given, then you should buy sooner rather than later, to retain the low mortgage rates and get a good inflation hedge.
The only problem with inflation (whereby I mean 3-4% inflation not massive inflation) is if rates earned on savings don't match up with it.
Robert,
I guess he is, I just don't know how to interpret it. I think it's more of the oblique Fed-speak where they try to influence the markets by their words as well as their actions.
We're going to keep rates low until the economy is roaring again should be good for whom? All borrowers really, including businesses, right?
"Cara said...Deflation then inflation, just as contrarian says. Though hopefully not to the extent he thinks will happen."
Looks like we are already there cara:
http://1.bp.blogspot.com/_P6hcLu1z9Nw/Sox5IUwFGfI/AAAAAAAAAm4/F6mamndMoe0/s1600-h/infll.gif
We're going to keep rates low until the economy is roaring again should be good for whom? All borrowers really, including businesses, right?
Yes. Good or bad, that is what I think is going to happen.
This conversation assumes the Fed can do whatever it wants. False. It is constrained by how many countries, institutional investors, and individual investors are willing to buy Treasuries.
Also, unless the regulators allow the banks to go back to the dark days of 2003-07 with crazy loans, home prices will be pegged to what people can actually afford. So without higher incomes home prices do not go up.
Robert,
Previously you said you'd go with what the people putting money on it said. Those investing in Fed futures predict rate hikes next year.
To be fair though the Fed has rock bottom rates because our economy is in the toilet. It's the worst recession since the Great Depression. The Fed is not forecasting a V shaped recovery and probably is antsy about whether we have even hit bottom yet.
So there is a non-housing market basis for the Fed Funds rate. It's not going to have 0-0.25% if the economy is booming and the only reason to have low rates is for homeowners.
Well the intent would be to let inflation make housing prices reasonable and that requires that housing prices stagnate. So I don't think housing will be a good investment. The amount I've saved up for a down payment loses real value so that people who paid too much for their house 2 years ago can break even in a few years.
Case-Shiller looks like a V. I know, I have my rose colored glasses on, but when I take them off, it still looks like a V. When I turn it upside down it looks like a teepee. On its side it looks like either a greater than or a less than sign depending on how I turn my computer screen.
Not saying it won't turn into and L or a W, just saying right now it looks like, well, you know.
Previously you said you'd go with what the people putting money on it said. Those investing in Fed futures predict rate hikes next year.
True statement. I still consider 1% or even 2% as low rates.
This conversation assumes the Fed can do whatever it wants. False. It is constrained by how many countries, institutional investors, and individual investors are willing to buy Treasuries.
Somewhat true. People that are buying treasuries today are well aware of our $9T deficit going forward. It looks like it's going to take something north of $9T to get them to sell.
Eldon,
I'm not following. Traditionally debtors want inflation but creditors (banks) do not want inflation. Are you and the others trying to suggest that banks now are debtors as well? Well, I suppose they are in some sense debtors to the U.S. Treasury but I would think overall they are more of a creditor. So they do not want much inflation because the more inflation the less their loans are worth.
You may recall that William Jennings Bryan wanted the United States to change its gold standard policy so as to have large inflation. This was populist and meant to harm banks in favor of all the farmers across the country in debt. Banks did not like this idea and defeated it.
Robert,
I doubt creditors put much stock in the $9T figure. Everyone knows it's got a lot of ifs since it's pretty difficult to guess the economic growth of the next 10 years. Also it assumes no changes to tax laws which we all know will be changed annually.
I may be wrong but I think you'll see Congress change our deficit levels next year either by raising taxes and/or paring down the 2010 budget.
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From Paul Krugman today:
"In spring there was talk of the return of the “bond vigilantes” of the 1980s and 1990s — meaning that investors would demand ever-higher yields on Treasuries to discipline the government.
Yet yields on most longer-term Treasury securities are lower today than they were at the end of May, even as the economy has shown signs of recovery. The 10-year T-note yield is at 3.45% today, down from 3.74% on May 27.
For now, at least, interest rate movements seem to reflect views about the economic situation and the prospects for eventual Fed tightening. Rates rose as the end-of-the-world scenario receded, then stabilized. There’s no hint in the data of fears about (a) crowding out (b) inflation (c) default. It’s good to be an advanced country."
To follow on the republican meme during the 2008 election, "drill baby drill" has been replaced by "print baby print"!!!
I'm probably missing plenty of subtlety but I guess I'm not of the opinion that the current situation is like times of the past. Currently banks hold a ton of loans that are backed by collateral worth less than the loan. They gave someone $500k, that person went bankrupt, they're now stuck with a house worth $350k. That's a massive amount of loss that they can't possibly take. They need something closer to $500k and one of the few ways that I see to do that is inflating the dollar until $500k in inflated dollars equates more closely to what is $350k in current dollars. Does inflation usually lead to more rapid wage growth? That would certainly help too.
I agree that under normal circumstances inflation would hurt the banks. If they're looking at massive losses on those loans though I would think they'd rather take a smaller loss via inflation. The alternative is the collapse of a boatload of banks. I don't see how they can absorb the losses out there right now. I guess they could continue to simply make up numbers on their quarterly reports but I think that only takes you so far.
If housing prices go up with inflation the plan fails though. They need to stagnate in price while their real value decreases. I don't know if that will happen with interest rates so low. Maybe someone with a better understanding can pick this idea apart for me.
Robert,
Indeed with only 3 months that is the shape. Take a glance through other CR economic charts though. In the leading ecominc indicators you'll see lots of V's, all followed by zig-zagging wiggles along the bottom.
In other words, BFD. Wake me up when it's February. Wake me up once rates are higher and the stimulative effect of the $8k incentive has run its course.
In the meantime you might find it worthwhile to bother to take the time to read tbw's comment on the last bubble burst here. Is it really that hard to scan through the columns of Case-Schiller that Harriet provided to see that a spring V does not a reinflation of the bubble make?
Yeah from August onwards the real estate market has shown some positive signs as the worst of this economic crisis is gone. So we can expect it to improve by December this year 2009.
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