If Anybody Bothered to Take a Close Look at the Latest Housing Numbers...

Reggie Middleton's picture

I read through the usual suspects in the mainstream media yesterday
after the Case Shiller numbers were released and see headlines such as "Home Prices Flatten in October After 5 Months of Gains" and "Mortgage insurers rally after housing data"
and wonder just how many of these reporters and analysts actually
bothered to look at the data versus repeating sound bites. This has
been a bad three quarters for the fundamental bears, but there is
absolutely no macro or fundamental reason to turn bullish. As a matter
of fact, the only reason I can see to buy stocks is that the stock
prices are going up. That, in and of itself, should give one pause.

Let's take a close look at the "raw" Case Shiller numbers, not the
seasonally adjusted ones for which I cannot source the method of
adjustment for seasonality. Don't worry, if one looks at the data over
a long enough time frame, you can easily recognize the patterns of
seasonality, and more importantly notice how dramatic they have become,
leaving open to question how effective the seasonal adjustments are,
whatever they are.

  Starting with a bird's eye view of key markets over two decades you
can see that the housing boom was enormous and the crash was severe,
but nearly all major markets ticked up significantly over the last few
months, although we are still at roughly 2003 pricing levels, having
lost about 7 years appreciation. The question is why. Well, the US
government has put more money and resources into re-blowing the
residential housing bubble than any other time in its existence.

 Click any graph to expand.


Despite this, significant headwinds persist in inventory, foreclosure
and distress pipelines, unemployment, etc. Yeah, I know, you have heard
this all before, but let's put it in context this time around.


This chart shows us the month to month changes over the same time
period. As you can see, last year was bad, but we again ticked up
significantly for several months in a row for an improvement. That
improvement has quickly disappeared with several markets dipping back
into the negative. and all markets trending sharply downward
This is a negative, not a positive turn of events. Put this in
perspective, with hundreds of billions of dollars of government aid,
MBS purchases, tax credits and bank support - we are still seeing this
sharp month to month downtrend. It is no wonder why the housing tax
credit was extended, but to what good?

As we drill down on the trend view, we can see that the upward trend in
most markets has stopped, with a few markets actually turning back down
again, and right after the spring/summer selling season and the
perception of the proximal expiration of the tax credit. This is a
negative, not a positive turn of events.


The chart below illustrates the seasonal ebbs of month to month price
changes.  On a month to month basis, we see hills in the spring and
summer and valleys in the fall and winter. During the onset of the
bursting of the (first) bubble, this cycle was compressed, but was
still there. and lasted throughout the bubble. With the onset of the
government stimulus (ex. housing credits and MBS market manipulation),
the peaks were significantly exacerbated. Now we are entering into the
winter months again, and guess what's happening, as has happened nearly
every winter cycle before. The only difference is that this dip is
extraordinarily steep! I would also like to add that the month to month
price changes coincide exactly with the S&P 500 move downward and
upward for 2008 and 2009, to the MONTH! What a coincidence, huh? If
this relationship holds,,,, well you see what direction the month to
month lines are going and how steep they are, don't you?


As you can see when we drill down into the month to month  numbers, the
improvements either weaken significantly or disappear into numbers that
show further declines - and this is in the face of government bubble


Let's chop the data up using bar graphs that give the reader a greater
feel for the seasonality of the moves, and you will still find the
latest numbers showing what looks like a downtrend, again...


  Remember, the CS index measures matched sales pairs. That means that
it attempts to follow the same properties being sold, so the
seasonality will mean much less than if one were simply measuring
transactions, irrespective of the property. The seasonally adjusted
numbers look more positive, but still show a downtrend. Since I could
not find the specific methodology on the "de-seasoning", and I am
easily able to discern the seasonal trends over time, I am much more
comfortable with the raw index data.

So, what does it mean if we get another significant downturn? Well, not
only are the 2003 to 2007 vintage mortgages in trouble, but those 2008
and 2009 mortgages are at risk as well. What are the chances of this
happening? Fairly significant. For all of those guys who swear we are
on the brink of a booming economic recovery, recall that it was housing
depreciation that set all of this off to begin with. It was not a dip
in GDP, not unemployment, not a dip in corporate profits, definitely
not a change in analyst's earnings forecasts and not a crash in the
stock market. It was a crash in housing. What happens if we get another
housing crash (or more accurately put, the continuing of the current
one) after a few hundred billion of stimulus and a 62% run in the
S&P to guarantee that the stocks are nice and ripe in their
overvaluations? Inquiring minds want to know...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
dumpster's picture

dont trust the gold market .. lol


brainwashed by the pavlovian mantra.. best to get a grip.. understand austrian economics .. gold is on the way up.. whats not to trust .. start reading up on gold .. sinclairs mine set a good place to start ..


stop following the anti gold paper shufflers .. and the wisdom gained over the last few years by the diaper crowd .. that have no clue of the nature of gold , of money  yadda...

patch2's picture

True story my daughter and her husband bought  their third house in Dover a couple years ago , they bought it for 380 thou , got a second for 100 thou , remodeled the house (beautiful house) the husband got transfered to Calif . The govt pays 4 months of mortage payments in his dept . They put the house up for 615 thou the price has been dropped to 480 thou , they are going to have to let it go . There are 20 comparables on the market going into forclosure . As a footnote to this their realtor told them that the 2nd house they had owned in Dover , which they sold for 335 thou and bought for 280 thou just went into forclosure and the bank priced it at 235 thou . Dover has lost 12,000 jobs according to Son in Law . Sad but true

Anonymous's picture

Thank you for this thorough analysis Reggie. I'm wondering if you can help me avoid the mistake I made in 2006-2007. I brilliantly (or so I thought) sold my house in 2006, feeling that housing prices were absurd and unsustainable, and began renting. So far, so good. I pocketed 700K for a 2 bedroom 1 bath house in the SF Bay area. Then (not so brilliantly) I put much of that money into the stock market, which got hit far worse than the real estate market here.

Ok, so now, I see the shadow market, the impending resets of Alt-A's and ARMs with significantly tighter qualifications requirements, the ending of unsustainable government programs propping up the RE market, and the end of absurdly low interest rates, and I agree with the analysis that we're soon going to see RE prices take a hit. The question is:

What do we do with the money we have left? I don't trust the gold market. It seems just as artificial and bubbled as real estate. I've been burned by having money in stocks when the bubble first burst.... it took down the entire financial system, worse than the hit on RE values... so I'm not comfortable with that option. Cash and equivalents (in U.S. dollars) sees like a bad bet. Interest rates are non-existent, and the value of our cash gets devalued all the time because of falling dollar.

So, Reggie, I feel like I can see what's impending, but don't see any strategies for surviving it intact. I guess the question is, what does the "smarter than I" money do if we believe that the markets are headed down?

Thanks for your thoughts.

Tom Clement's picture

P.S.   At one point, I put money in international stocks, only to see that wiped out.  Am I just doomed?


dumpster's picture

the assets will belong to the state.   the rent rolls will increase... funny money for real.   the great heist before are very eyes . A double wammy.. increased taxes on the new fiat creation,,, plus freddy ... fanny ... collecting rent on the asset.    

Anonymous's picture

Is the point of the Math Question at the bottom of the comment box an effort to keep stupid people from commenting. It took me 21 guesses but I finally got it right! From a full time Real Estate Investor - There are lots of great comments on this page but realize there is opportunity at every turn of this crazy economy. The do nothing strategy won't move you forward, it may keep you fed for a couple of extra months or even years. Get smart enough, stay on your toes and develop relationships with the right people. Fortunes will be made and lost during this chaos. It's alot like riding a bull - research before hand, lots of experience on some small ones and then it all comes down to being able to make quick adjustments that keep you from getting kicked in the head.

lawton's picture

Reggie Middleton, we have that going on some down here in Florida also I have seen commercial buildings in the last year being put up despite the existing space being so empty - It will just make the CRE problem worse for years to come.

Reggie Middleton's picture

You know, it is funny to witness people disbelieve what they see with thier own eyes because the government and the media preach something to the contrary. For those who haven't read these posts and aren't from NYC, I strongly suggest you go though "Who are ya gonna believe, the pundits or your lying eyes?" (for pictures) and "Who are you going to believe, the pundits or your lying eyes, part 2" (for numbers and a very shaky video), I illustrated a trip from Chelsea Piers in Manhattan to Prospect Park in Brooklyn, capturing the rampant supply of residential, office and commercial space that is STILL being put up despite the extreme glut currently in this rapidly declining market. As you look through all of this visual material, remember banks have supplied the capital for building all of these empty edifices, at no less than 10x leverage. None of this inventory was targeted at the middle and lower classes. As ironic as it may sound, this activity ultimately ends up causing downward social mobility as asset values collapse under mounting debt. See Super Brokers form to push Super Broken products to make those with High Net Worth Super Broke for my take on social mobility, downwards style).

lawton's picture

Pinefox, It is the same here in Florida with commercial real estate and empty office space and the rest. The media can say anything they want like they did before the current housing crash but what people see at ground level is the true reality of the economy. I like all people to get diplomas at least but that is the least of my worries considering all the college grads we have now who cant get a job that requires that and that was an issue even before this current recession. I hate to say it but I see a Depression coming because the system will have to collapse eventually. I see it coming anywhere from late this year until the end of 2012 at the latest because our debt level is just too high finally.

Anonymous's picture

Sorry to be contrary but -- come on, folks -- we have to face up to the reality that ALL of the federal government's housing market support actions (easy FHA loans with trivial down payments, massive Fed purchases of MBSs, tax credits for home buyers, unconditional bailouts of big banks, etc ) WILL CONTINUE FOREVER.

The Feds will not stop any of these programs.

Once we admit that, we can see that the housing market's arterial bleeder has become a minor, slow flowing flesh wound.

This is gonna drag out to 2020. So, 2010 won't be that interesting.

Pinefox's picture

I have been a commercial realtor in Seattle for 38 year involved with leasing and selling of a couple million square feet of office and retail space.  

I am 62. a divorced woman for years now, have lived in a lovely neighborhood for 30 years surrounded with neighbors my age. I have become semi-retired because retail and office tenants are not expanding or moving, vacancies are going up, major projects are on hold. On the residential side, looking out my window, I can see 4 houses for sale in less than a 1 block radius that have been on the market for over a year. Demographically, there will be many more coming on the market in a few years. Fortunately I live in a mini house in a maxi neighborhood, but my neighbors who are in houses that 3 years ago would have sold for close to a million or more are not worrying about the price they will get for the house, but more whether there will be any buyers period. Many were counting on the equity in their homes to fund their retirement. Seniors and those close to retirement have been hit doubly hard, investment portfolios cut in half and house values headed in the same direction. The area south of us, inland, away from views of Puget Sound, mostly middle income housing has been over developed with cookie cutter future slums of America housing. It is a disaster area. I have been through 4 major recessions, the first being in the early 1970s when Boeing cut two-thirds of its work force and at that time, Seattle was a one horse town. A billboard was erected saying "will the last one leaving Seattle, please turn out the lights". I think the situation is worse than ever before. One of my office clients, Pres. of a major structural engineering, firm says there is no new work, nothing on the horizon in the private sector, jobs he had are being aborted. With Boeing building a second Dreamliner facility out of State and having moved their headquarters to Chicago a few years ago, the handwriting in on the wall. I know this isn't statistical info, (I could quote vacancy rates etc.) the stats don't paint the real picture. The housing data doesn't include houses that have been on the market for months or years as for sale by owner nor show the ones that have been taken off the market because they didn't sell and the owner has given up, thinking it will be better next year. Wrong. Karl Denninger on Market Ticker writes about the feds efforts to "kick the can down the road". I think the road is going to end and the can is going to go off a cliff. Seniors who would be spending because they were well off, are no longer well off. Fifty-somethings are not spending because they realize they haven't saved enough for retirement. Thirty and Forty-somethings are worried about keeping their jobs, so they are cutting back. Twenty-somethings aren't making enough to spend much. Teenage employment in Wash. State is at an all time low and with only 66% of kids graduating from high school and probably a third of those are still functionally illiterate, it "ain't a pretty picture". I can't see how the feds can overcome the changes manifesting throughout our society, no matter how much stimulus they throw at it. What is going on here just reinforces what the numbers are telling us about the rest of the US. I am new to Zerohedge, so I hope some of you great minds will figure out a way out of this mess.

Anonymous's picture

Hi Pinefox,

Wonderful post, thank you!

No one is commenting on this end of things so I thought I should. Most of the posters here are traders; please explain to me how we can have a few percentage points of growth every year to pay the debts and create the money that paying interest requires? We're on a finite planet guys, and I think this system has hit it's limit, helped along by massive amounts of fraud and corruption.

No one else is mentioning it so I'm gonna: Please (PLEASE!!!) see Zeitgeist the movie available for free on line, Zeitgeist Addendum which was made about a year later and actually has possible solutions to this mess, and the various videos and written material outlining the Zeitgeist and Venus Project's proposal for a resource (rather than money) based economy. I would love to hear any critiques you may have about it as well as caveats and kudos.
Zeitgeist.com, the original movie now has 50 million + views and over 200 chapters worldwide.

C'mon, please? Can we start talking about a different way of doing things that will remove most of the potential for crime waves masquerading as business as usual?

Thanks and Pinefox, I would love to talk to you personally. I'm in the Portland Oregon area and see much of the same happening here. We're the same age and sex, a rarity (I think) here on ZeroHedge. I've also been reading Market Ticker, but after 8+ years studying peak oil and history, let's just say I have a doomer's view of this mess; while another poster is correct and yes, there will be money made during this crash, maybe we need to stop thinking along those lines... how about we try to make as many people worldwide safe, comfortable and fed, and use technology to the max to create a green, sustainable world (the only kind that really is possible)?

Humble Gentleman's picture


Thanks for taking time to post; very insightful. I'm 27, and I commit every day to trying to make the world a better place. My modus operandi is to be good and do good; point being that you shouldn't lose faith. Yes, the economy is rotting, and our country's spending is keeping us on course to experience hyperinflation. However, hyperinflation is normally a transitory phenomenon, and we have unmatched creativity, drive, and brainpower in this country.

Best wishes,

Humble Gentleman

TruthHunter's picture

 One problem I haven't seen discussed is that supply

exceeds adjusted demand by at least 25%.  

before you head for the Junk button, let me make

my case.

1. Consider how many 2nd homes there  are. Some are

retirement  or vacation homes that are now under water.

In some cases the 2nd homes were purchased with downpayments

out of Heloc's so there is the potential for 2 homes to be underwater.

When the DINKS(double income no kids) become the SINKS, one house

has to go.  If they are lucky they can manage to keep one. This means

a huge drop in demand.


2 Impact fees and rising expectations mean the many homes

are overbuilt. Impact fees are often a higher % of affordable housing

so  it wasn't being built. In a downturn people double up.

For example, my  wife's shit head daughter had a house on Long Island. Her husband

took out a 2nd mortgage to open a bar. Bar goes under and they are left with

a payment that is 50% of income. Marriage goes under, house payment

goes to 100% of income and is eventually foreclosed. SHD  moves

in with mother into a 1650 square foot house that is now

too small as configured.  House suddenly only makes sense remodeled

into a duplex with 2 1000 sq ft(no garage) 3 bdroom apartments. Unless

we get a serious recovery, this kind of situation could suck up excess demand

for years to come.

3 So far the 50% employed by the public sector have been largely

immune from layoffs.  As States are forced by default and really

get serious about downsizing, unemployment among government

workers will rise to at least 10%.  Eventually even the 
Federal Government will have to  make  cuts. This means

people who have entirely escaped the recession will be affected.


4. When the dollar collapses(How to measure that??? Let's just

say oil stable at >$150 in spite of collapsing demand)

A  lot distant suburbs will no longer be affordable. This 

will lead to more pressure to move closer to jobs. A McMansion

close to jobs will suddenly look attractive converted into a fourplex.

The stupid French Hip roofs may be replaced by a real 2nd

story. Remember all those 1890's mansions that were rundown

apartment houses in the 70's?  They became gentrified in the 90's and 00's

They may get cycled back to multifamily again.


To sum it up a lot of the demand that created the bubble

was based on conditions and expectations that are out of

line with world standards and are subject to reset. This could

keep new construction and home values low for many years even decades..

Think Japan...



Gordon Freeman's picture

Replacement cost has always been a reasonably useful measure of value, and provides some test of pricing sanity, as do rent/own ratios.  By these measures, housing is nowhere near a bottom, in most of the 200 biggest/most representative markets.  There are parts of the USA where replacement value/new construction is $70/sq.ft., and you can rent a 5 bedroom McMansion for $900/mo.  What does Diana Ollick have to say about that?  Is that measured in the Case-Schiller data?  

"Moving up" to the current "move-up" price range is correctly seen as financially insane by any thinking buyer.  The whole demographic wave is over.  People are losing jobs, not starting them.  There is not a shred of evidence that we will ever return to the peak prices, in the current generation.  Even hyperinflation will not cause this to happen.  Cash has never been more king, and we are in the top o' the 2nd...

Thanks, Reggie, but you really don't need to pull your punches that way!

Anonymous's picture

No sure if anyone reads Trepp's daily CRE commentary (TreppWire), but they came out yesterday and said CRE delinquencies were above 6% for December.

Guy Fawkes's picture

Thank you Reggie - great easy to folllow post. 

I am always on the lookout for housing news as I deemed it to be the crux of what is wrong with the economy.

If you are interested I tried to post some of my findings pieced together by people much more adept to data crunching than I. Would appreciate any feedback.


rapier's picture

Additionally the CS number is a trailing 3 month moving average. The number is therefore old news.

ghostfaceinvestah's picture

I was going to mention that.

It is wrong to talk about the CS index and describe it as "monthly" increases or decreases.  More accurately, the 3 month moving average as of October was flat.

If you look at the recent pattern of the three month moving average, you can pretty easily see that on a monthly basis, prices in October were almost certainly down, and if monthly prices don't pop in November, a drop in the 3 month moving average is pretty much baked in.

Anonymous's picture

"johngaltfla" is the one making the most sense to me here.

In my experience, most economists and media - from Krugman to Roubini to Sorkin et al - never mention the key factor; resets on the horizon. On this alone, any talk of a recovery is at best a cautious bet and worst a disaster in the waiting.

The worst part is, it IS inevitable, and given the performance of this completely inept government the forecast is gloomy at best.

Worse still, the public, as usual, has no clue about what's going on. The media reporting on this is key and has been and continues to be a disaster in and of itself. Talk about MBSs/Subprimes doesn't tell Americans about just how much pain is out there, just waiting like a snake in the grass.

Hell, most econ journalists couldn't tell you the different *kinds* of subprimes out there - a key in understanding what the hell's going on.

But unlike so much smoke and mirrors and overwrought explication of a subject, these days, the late, great, Tanta of Calculated Risk said it best;



drwells's picture

What if there are resets? People's option ARMs will reset to the sky, they'll stop paying (or continue not paying), and continue living rent-free in their houses while the banks lie that these loans are current. Hell, let rates go to 20% and the Fed will continue covertly monetizing Trashuries as described in that Sprott article, forgiving the interest and lying that J6P is doing the buying. Everyone in debt, rates to the sky, no one paying, everyone lying.

Anonymous's picture

"johngaltfla" is the one making the most sense to me here.

In my experience, most economists and media - from Krugman to Roubini to Sorkin et al - never mention the key factor; resets on the horizon. On this alone, any talk of a recovery is at best a cautious bet and worst a disaster in the waiting.

The worst part is, it IS inevitable, and given the performance of this completely inept government the forecast is gloomy at best.

Worse still, the public, as usual, has no clue about what's going on. The media reporting on this is key and has been and continues to be a disaster in and of itself. Talk about MBSs/Subprimes doesn't tell Americans about just how much pain is out there, just waiting like a snake in the grass.

Hell, most econ journalists couldn't tell you the different *kinds* of subprimes out there - a key in understanding what the hell's going on.

But unlike so much smoke and mirrors and fancy "overtalking of a subject," these days, the late, great, Tanta of Calculated Risk said it best;



johngaltfla's picture

Reggie, thank you. You have been rocking with your views for years now on this subject and many others. I just wonder how people are going to resolve all of the 2nd's banks like Citi, JPM, and Wells hold with the massive resets about to occur in 2010 and 2011 (remember the old CS chart gang?) and when the default occur because they can not find reasonable resets or refis AND the homes go even further underwater just how will the banks survive unless Uncle Ben's Wild Fed Rice decides to monetize most if not ALL of their losses.

I love the smell of napalm in the morning.

And these morons are all bragging about the markets while the leading banksters are have been under their 50 DMA for a month or more now.

To quote Pat Travers:



Anonymous's picture

FHA loans insured in 2008 are defaulting/have serious problems at 20% rate. 2007 vintage at 24% rate.

I just found Barney Franks explosive admission that these default rates are no problem because the POLICY is to keep prices from "falling too fast". This inadvertently reveals the FED and Treasurys strategy across multiple insolvent 'asset classes" I posited months ago- They know the Crash can't be prevented, just slowed down.
A Damning admission, not followed up on anywhere- how about a little sleuthing, Reggie?

Anonymous's picture



Please consult page four to understand how to seasonally adjust a time series. I have never implemented the process myself but I understand it pretty well.

There is some software put out by the census bureau that will automatically calculate the seasonality of the data and the explanation of how it works is given in the pdf listed above. As far as I know it requires a minimum of 4 cycles of data to be anywhere reliable and becomes fairly accurate after 7 cycles (years).

Seasonality can be computed in two ways, multplicative and additive. I think the X-12-ARIMA algorithm produces the multplicative series in which you must multiply the series by the actual data to achieve the Seasonally Adjusted (SA) sequence.

Anyway, the point is probably moot because others already produce SA sequences of CS data already. S&P already produces SA CS sequence and makes it publically available at the following website.


I have been following you for a while. Great read, love the website, keep up the good work.

Ned Zeppelin's picture

I am in the residential housing industry, and please know that (a) all mortgages are either FHA, Fannie or Freddie, or they do not exist; (b) almost all housing activity can be traced to the tax credit - somewhere in the food chain where a transaction occurred, someone got the credit and used it to buy.

think about that: if not for government mortgages, there would be no mortgages.  Now how much is residential real estate worth? I really, really wonder what is going to happen when the Fed stops buying GSE debt in March.  I think the sausage has to be bought, or the machine locks up.

"The pump don't work cause the vandals took the handle."


Anonymous's picture

The price of housing took out the middle class, and until it is affordable again in most states, forget about American consumer. Even with lower housing costs in last 2 years, think of what a double income, healthy couple with two kids needs to do to secure the same middle class lifestyle of their parents. They both have to work. At least one of them better have a degree or some real special skills, not like manufacturing or constructuion jobs for those with standard high school educationare paying big.
They have to save for their kids college, if they want their kids to be middle class. They have to save for retirement, and how much return are they investments in nutual funds going to get over past and future 30-40 years of their working life. They have to pay way way too much for a house. Health insurance decutibles and copays way high even if lucky to have employer coverage. They have student load debt too...

The Fed and US Govt printed housing dollars in the form of low interest rates and Fan/Fred but once house mania got started, totally private money like MBS, subprime fueled the likes of Cali that didn't need/get any govt backed mortgages. Only regualr people that benefitted were older ones that could re-fi to lower rates but still had cheap house bought low ago, and of course, investors that got out in 2005. Younger people, people who took equity out of house etc, investors that stayed, all toast.

Housing must drop to save US consumer. There are even saying that Cali that many people that walk away and rent for much less are a boon to consumption because they actually have diposable income. But if housing drops to affordable, banks done, gone, over. So if you are the govt, who do you choose?....why the banks of course, and the beauty is, your can make the consumers pay twice for banks via over-price housing costs AND extra taxes for bank bailouts, Fred/Fan bailouts etc...why hurt the banks when you can kill the consumer...its just that they keep forgetting the consumer is 70 percent of economy...nasty catch that will catch them eventually....

Anonymous's picture

You NAILED it perfectly- a Double bailout for the banks.

Gimp's picture

Great job Reggie as usual.

BTW - Detroit is a wasteland. No recovery visible for decades.

Leo Kolivakis's picture

Some comments from a friend of mine who is an expert in real estate:

Here is my US House Price analysis based Case-Shiller Home Price Indices of October 2009. For the markets covered by the data, 60% of them were decreasing in October. This combined with the seasonal effect, I believe, shows that the markets are starting to deteriorate again in Q4 2009.


This opinion contradicts the opinion made by S&P... "Home Prices Still Improving but at a Moderating Pace Entering the Fourth Quarter of 2009 According to the S&P/Case-Shiller Home Price Indices (click here for PDF)".
If you want my opinion on S&P position, I would just say that it is unresponsively optimistic... rating agencies are still behaving irrationally. I can still recall their opinions on RMBS packed with subprimes. This opinion is of the same quality.
Some interesting points in the analysis are:
- New York bounced back as companies think that the worse has passed and new hiring in the financial sector will be enough to support the residential market;
- It seems like Las Vegas is very near its bottom;
- Detroit market is very sensitive.

Anonymous's picture

thanks...always good to read your analysis.
here is a snip from http://wbrussee.wordpress.com/ on the CS index

"The Zillow data showing homes dropping in price is in sharp contrast with the more publicized Case Shiller home price data that has been showing that housing prices are recovering. The problem with the Case Shiller data is that they are strongly affected by the market shift from subprime mortgage foreclosures to prime mortgage foreclosures which are generally on higher priced homes."

Anonymous's picture

"recall that it was housing depreciation that set all of this off to begin with." ???? - yes, kind of.

It was the rising cost of oil that lead to an increase in interest rates that lead to the collapse in housing.

Anonymous's picture

Actually it was the option arm loans with interest only payments given to people without real proof of income. They only allowed the neg am to pile up so much before it trigger a jump in the monthly payment. Anyone that could qualify for an $800K house based on a $1500/mo payment couldn't possibly keep up with a payment once it doubled or tripled from one month to the next. As soon as there were enough of these exotic loans in existence it was merely a waiting game until enough triggered the payment increase to bring it all to a tipping point. Gas prices just sped it up a little...but no more than a few months.

Anonymous's picture

Well, that's what they are saying now - except housing started crashing before the gas price spike...

If anything the gas price just accelerated things a bit - but there was no way anyone could actually pay their mortgages or pay back all their equity withdrawals...

And remember, the equity cash out re-fi's and other exotic forms of "purchasing" things where what they were using to live on because their incomes couldn't cover their debts... before they added tens of thousands more to them with their "homes". All of that was in full swing long before gas prices spiked...

it does make a nice story though, but why would you listen to the same people who never saw the train wreck - even after it was fully wrecking?

Anonymous's picture

They'll find a way to pull forward more demand, eg., layaway plan for teenagers.

Rainman's picture

The downturn in housing value is obviously the culprit behind the economic downturn. Then layered on top of that is the CRE issue. That means we are in far worse shape than this time last year.

When the stimulus was approved last Spring, it was laughably unfocused on the core issue of housing price stabilization. A terrible wasted opportunity that will haunt the US taxpayer for years.

Reggie, your last paragraph should be required reading for all the 535 elected Critters occupying Capitol Hill and the Team Obama recovery czars . Nice job.

Rage of Odin's picture

PS; being the mortgage business a little, I know the minimum FICO score is going from 620 to 640, might not seem like a lot but lenders are taking less and less risk no matter what FHA says they should do.

Anonymous's picture

Not sure where you are, but it has actually gone to 720 for minimum FICO (southwest).

Rage of Odin's picture

Reggie, does this include or is there any data on all the shadow inventory that banks have on the inventory but are not reporting. I know in the Sacramento area they turned the supply spigot to a trickle early this summer to try and drive prices up ( supply/demand). Properties are getting a lot more offers, but only in the sub $225K price range. Lots of houses sitting empty!! As always great analysis.

Reggie Middleton's picture

No, it doesn't. If it did, it would look a lot uglier.

Anonymous's picture

I'm strictly a financial dilletante, but this analysis seems right-on. As a 64-year-old weirdo w/o any equity who's waiting for prices to get reasonable again, it even sounds encouraging. We had a house in MD for 10 years, until '99, when we moved to northern New Mexico. Damn place in MD appreciated less than one percent per year in all that time, and of course we sold before the big boom. Ai yi yi.

A commenter at Calculated Risk brought up a point I haven't heard anyone making, BTW: what about the Great Boomer Die-Off? I was born in '45, so I dig this stuff. When the huge wave of those born right after I was start shedding their mortal coils, won't there be an inexorable & mighty increase in available housing? More inventory? Unless someone burns them all down, I mean. Surely this will act to suppress house prices for the rest of my life, no?

badrhino's picture

Not only housing, but a range of other assets...

Martenson Crash Course - Chapter 14, Assets and Demographics:



divide_by_zero's picture

Democrats currently lining up "Immigration Reform" (AKA Amnesty v2.0 or v3.0 depending how you count), should start another flood like the last time. Millions of buyers with a clean credit history.

Anonymous's picture

>I wonder what the White House play will be when a serious
>event (Euro crash, China bubble burst, terror attack, Middle
>East oil crisis) occurs that will provide reasonable
>political cover to allow the market to tumble.


Implosion Therapy's picture

Excuse me if this is a rookie question but....if the banks start lending all their Benny Bucks doesnt that cause inflation? And who are they going to lend too? I mean who is credit worthy anymore,and who wants to borrow right now? America seems to have a hangover from the ten year credit orgy right now..

Anonymous's picture

It's called a balance sheet recession where the private sector is no longer seeking to maximize profit but instead seeking to minimize debt. The banks aren't loaning because few are asking for loans, even at near zero percent. If banks were in truth being tight with credit, then wouldn't we see a plethora of new corporate debt offerings?

Anonymous's picture

I just wrote a long and IMO thoughtful comment on the seasonality, I am wondering why you seem to have moderated it out?

Reggie Middleton's picture

I am not the moderator here. My site is http://boombustblog.com.

Arthur's picture

A fine mess we are in. 

I wonder what the White House play will be when a serious event (Euro crash, China bubble burst, terror attack, Middle East oil crisis) occurs that will provide reasonable political cover to allow the market to tumble. 

Are the Feds/White drinking their own cool aid or are they like some poor bastard in Vegas chasing a loss and hoping to get lucky?

Given a long enough time horizon the US economy will recover.  The question is when/whether there is a major correction. 

Unless the banks start lending again I think we are doomed.  Now that the big boys paid back their TARP funds, how much leverage does the Fed have?  There were a tremendous amount of short term loans made near the end of this past bubble that are coming due this year and next.  Who is going to able to refi?  The bankruptcy courts are going to be busy.

Cursive's picture

This has been a bad three quarters for the fundamental bears, but there is absolutely no macro or fundamental reason to turn bullish.

Tell me about it.  Your conclusion about housing leading the way does seem valid.  The housing ATM shut down in 2006, sending consumer spending down and, thus, GDP.  However, the wealth effect of housing could be replaced by the wealth effect of stock sales, but this seems unlikely since everything, equities included, has an artificial bid from the government.