Saturday, December 31, 2011

Summary for Week Ending December 30th

by Bill McBride on 12/31/2011 09:00:00 AM

This was a light holiday week in the US. The data was mixed, although generally better than expected. Beating low expectations has been a recent theme.

The Conference Board reported an increase in consumer confidence, the Chicago purchasing managers' index was essentially unchanged (better than expected), and pending home sales increased.

Initial weekly unemployment claims increased somewhat, but the 4-week average is at the lowest level since mid-2008. And Case-Shiller reported house prices are at new post-bubble lows (seasonally adjusted).

Here is a summary of last week in graphs:

Case Shiller: House Prices fall to new post-bubble low in October

From S&P: The Fourth Quarter Starts with Broad-based Declines in Home Prices According to the S&P/Case-Shiller Home Price Indices

Data through October 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices ... showed decreases of 1.1% and 1.2% for the 10- and 20-City Composites in October vs. September. Nineteen of the 20 cities covered by the indices also saw home prices decrease over the month. The 10- and 20-City Composites posted annual returns of -3.0% and -3.4% versus October 2010, respectively.
Case-Shiller House Prices Indices Click on graph for larger image.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 32.9% from the peak, and down 0.5% in October (SA). The Composite 10 is at a new post bubble low (Seasonally adjusted), but still above the low NSA.

The Composite 20 index is off 33.0% from the peak, and down 0.6% in October (SA). The Composite 20 is also at a new post-bubble low.

Case-Shiller Price DeclinesThis graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 4 of the 20 Case-Shiller cities in October seasonally adjusted (only one city increased NSA). Prices in Las Vegas are off 61.3% from the peak, and prices in Dallas only off 8.8% from the peak.

The NSA indexes are only about 2% above the March 2011 lows - and these indexes will hit new lows in the next few months since prices are falling again. Using the SA data, the Case-Shiller indexes are now at new post-bubble lows!

Real House Prices and House Price-to-Rent

Nominal House PricesThis graph shows the quarterly Case-Shiller National Index SA (through Q3 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through October) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to March 2003 levels, and the CoreLogic index is back to May 2003.

Real House PricesHere are the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q1 1999 levels, the Composite 20 index is back to April 2000, and the CoreLogic index back to March 2000.

In real terms, all appreciation in the '00s is gone.

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Composite 20 index is back to March 2000 levels, and the CoreLogic index is back to May 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels and will probably be back to 1999 levels in the next few months.

Regional Fed Surveys and ISM Manufacturing Index

The regional surveys provide a hint about the ISM manufacturing index - and the regional surveys were mixed in December although they showed some improvement in the aggregate.

From the Kansas City Fed: Tenth District Manufacturing Activity Eased Slightly

From the Dallas Fed: Texas Manufacturing Activity Edges Down

Fed Manufacturing Surveys and ISM PMIHere is a graph comparing the regional Fed surveys and the ISM manufacturing index.

The New York and Philly Fed surveys are averaged together (dashed green, through December), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

The ISM index for December will be released Tuesday, Jan 3rd and the regional surveys suggest another reading in the low to mid 50s for December.

Weekly Initial Unemployment Claims increase to 381,000

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 375,000.

This is the lowest level for the 4-week average since June 2008.

Other Economic Stories ...
Chicago PMI: The overall index declined slightly to 62.5 in December from 62.6 in November. "EMPLOYMENT erased November's deceleration; ORDER BACKLOGS expanded to its highest level since April 2011"
• From the NAR: Pending Home Sales Highest in a Year-and-a-Half
Fannie Mae and Freddie Mac Serious Delinquency Rates: Slight increase for Freddie in November
Restaurant Performance Index increased in November
Hotels: Occupancy Rate back to pre-recession levels

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