Tuesday, August 25, 2009

Case-Shiller House Prices and Stress Test Scenarios

by Calculated Risk on 8/25/2009 02:25:00 PM

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

Case-Shiller Stress Test Comparison The Stress Test scenarios use the Composite 10 index and start in December. Here are the numbers:

Case-Shiller Composite 10 Index, June: 152.55

Stress Test Baseline Scenario, June: 148.82

Stress Test More Adverse Scenario, June: 140.71

Unlike with the unemployment rate (worse than both scenarios), house prices are performing better (from the perspective of the banks) than the the stress test scenarios. I believe there will be further price declines later this year, because I think the Case-Shiller seasonal adjustment is insufficient, and because I expect the first-time home buyer frenzy to slow just as more distressed supply comes on the market - even if an extension to the tax credit is passed.