Case-Shiller Index Down in December 2010

Unfolding housing data continues to confirm that a second dip in residential home prices is underway.  The Case-Shiller data through October 2010 headlined:

Data through October 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 18 of the 20 MSAs and the 10- and 20-City Composites in October compared to what was reported for September 2010. The 10-City Composite was up only 0.2% and the 20-City Composite fell 0.8% from their levels in October 2009. Home prices decreased in all 20 MSAs and both Composites in October from their September levels. In October, only the 10-City Composite and four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta, Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009.

Click on graph for larger image.

The chart above depicts the annual returns of the 10-City and the 20-City Composite Home Price Indices.  In October 2010, the 10-City and 20-City Composites recorded annual returns of +0.2% and -0.8%, respectively. October was the fifth consecutive month where the annual growth rates moderated from their prior month’s pace, confirming a clear deceleration in home price returns. The 10-City Composite posted a +0.2% annual growth rate in October, versus the +5.4% reported five months prior in May, and the 20-City Composite has now reentered negative territory, down 0.8% in October versus its +4.6% May print.

More telling in the data release was part of the accompanying statement from David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s:

“The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months’ supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.

Econintersect has long argued a second dip in the housing crisis was coming as the original decline was interrupted by government incentives which did little to cure the underlying dynamics which was causing the housing decline.  Earlier this month, the National Association of Realtors (NAR) November house price data was released (analysis here).  The NAR and Case Shiller data has been following the same trend lines.

Click on graph for larger image.

Case-Shiller only uses home sales in its analysis where previous home sales data is available.  The NAR uses all home sales in its analysis.  Econintersect believes both methodologies are acceptable.  It is necessary to recognize the noise factors in these numbers, however.  Case-Shiller is reported as a 3-month moving average and the NAR data is reported as single month data (the graph above converted the NAR data into a 3 month moving average for comparison purposes).

CoreLogic has also released data through October.  Their October 2010 data released in December was covered in Econintersect News (December 16).   CoreLogic incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases.

The opinion of CoreLogic forecasting a continuing price decline:

“We are continuing to see the weakness in home prices without artificial government support in the form of tax credits. The stubborn unemployment levels and seasonality are also coming into play,” said Mark Fleming, chief economist for CoreLogic. “When you combine these factors with high shadow and visible inventories, the prospect for a housing recovery in early 2011 is fading.”

There is obvious correlation right now between the NAR, CoreLogic and Case-Shiller data.

The downward price dynamic will continue until the market demand returns.  One key for increasing demand is growing employment.  In the past, housing has helped turn employment around.  In the current situation it may be that employment growth will be needed first in order to restart the housing market.

Whatever the governing dynamic is on home prices, the major headwind is the home inventory levels and the downward pressure of short sale / foreclosures pricing.

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