Tuesday, March 31, 2009

House Prices: Tracking More Adverse Stress Test Scenario

by Bill McBride on 3/31/2009 09:21:00 AM

For more on house prices, please see: Case-Shilller: Prices Fall Sharply in January

Case-Shiller Stress Test Comparison Click on graph for larger image in new window.

The first graph compares the Case-Shiller Composite 10 index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts).

The Stress Test scenarios use the Composite 10 index and start in December. This is the first month and it is difficult to see the track on the graph. Here are the numbers:

Case-Shiller Composite 10 Index, January: 158.04

Stress Test Baseline Scenario, January: 159.69

Stress Test More Adverse Scenario, January: 158.07

It is only one month, but prices tracked the More Adverse scenario in January.

And some more data on selected cities ...

Case-Shiller House Prices Indices Selected CitiesThis graph shows the Case-Shiller house price indices for five cities. These are nominal graphs (not adjusted for inflation).

This shows the incredible bubbles in Los Angeles and Miami (other cities like Las Vegas, Phoenix, San Diego had similar price bubbles). Now the prices in these cities are falling quickly.

I included Denver and Cleveland as examples of cities with smaller price bubbles - and prices are falling in those cities too. New York was a special case. Prices held up longer, but are now starting to fall rapidly.

Price to Rent Ratio, selected cities The third graph shows the price-to-rent ratio for Miami, Los Angeles and New York. This is similar to the national price-to-rent ratio, but uses local prices and local Owners' equivalent rent.

This ratio is getting close to normal for LA and Miami (although rents are now falling!), but still has further to go in NY.