by Calculated Risk on 4/28/2009 11:22:00 AM

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

In Phoenix, house prices have declined more than 50% from the peak. At the other end of the spectrum, prices in Charlotte and Dallas are off about 11% to 12% from the peak. Prices have declined by double digits everywhere.

Prices fell by 1% or more in most Case-Shiller cities in February, with Phoenix off 5.0% for the month alone.

And here is the price-to-rent ratio for a few cities ...

The second 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 (Miami is back to the Jan 2000 ratio), but still has further to fall in NY.

Note: The Owners' Equivalent Rent (OER) is still increasing according to the BLS, however there are many reports of falling rents that isn't showing up yet in the OER.

by Calculated Risk on 4/28/2009 10:14:00 AM

For more on house prices, please see: Case-Shiller: Prices Fall Sharply in February

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. Here are the numbers:

Case-Shiller Composite 10 Index, February: 154.70

Stress Test Baseline Scenario, February: 157.26

Stress Test More Adverse Scenario, February: 154.01

It has only been two months, but prices are tracking the More Adverse scenario so far.

But we have to remember the headline Case-Shiller is not seasonally adjusted, and there is a strong seasonal pattern. Update: there is a seasonally adjusted data set here.

This graph shows the month to month change (annualized) for the Case-Shiller Composite 10 index.

Prices usually decline at the fastest rate in the winter months (or increase the least with rising prices), and prices decline the slowest during the summer. Just something to remember when the month-to-month price declines slow this summer.

This is why we use the year-over-year (YoY) price change too (in previous post). The YoY change for the Composite 10 is -18.8%, the worst YoY change was last month (January 2009 at -19.4%). About the same.

I'll have some Case-Shiller city data soon.

by Calculated Risk on 4/28/2009 09:05:00 AM

S&P/Case-Shiller released their monthly Home Price Indices for February this morning. This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national house price index.

Click on graph for larger image in new window.

The first graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.6% from the peak, and off 2.1% in February.

The Composite 20 index is off 30.7% from the peak, and off 2.2% in February.

Prices are still falling and will probably decline for some time.

The second graph shows the Year over year change in both indices.

The Composite 10 is off 18.8% over the last year.

The Composite 20 is off 18.6% over the last year.

This is near the worst year-over-year price declines for the Composite indices since the housing bubble burst started.

I'll have more on house prices including a comparison to the stress test scenarios soon.

by Calculated Risk on 4/28/2009 12:48:00 AM

From the WSJ: Fed Pushes Citi, BofA to Increase Capital

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital ...

Executives at both banks are objecting to the preliminary findings ...

Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital....

The article also notes that the results of the stress test could be released the week of May 4th - and not on May 4th as originally announced.

No one will believe the test results if Citi isn't required to raise more capital.

by Calculated Risk on 4/27/2009 08:49:00 PM

Professor Shiller spoke at Seattle Pacific University today. After the Q&A, reader Erik asked Shiller:

Q: Why does the FHFA (OFHEO) index show house price gains for the last two months, whereas the Case-Shiller is showing prices are still falling.

A (Erik's notes): He thought about it for a bit, and said "I haven't studied it yet", I think it is because the "OFHEO index doesn't capture foreclosures as much our index." They tend to use conventional mortgages more and conventional mortgages seem to hold out longer and as a result "there may be an upward bias to their numbers." He then paused and said, the OFHEO numbers are a bit fishy (he looked perplexed) to me because they seem to have broken the smooth trend (he gestured with his hand the trend and finished with an upward movement) and I can't quite figure out where they came from, but I suspect it is from them capturing too few foreclosures or us capturing too many (laughs) even OFHEO has said they don't know why or can't explain their own numbers from the last two months.

I'll revisit this question soon, but I prefer the Case-Shiller index.

Tim at the Seattle Bubble Blog has more: Robert Shiller at SPU—Psychology and the Housing Market

One amusing part of the afternoon session was a story Dr. Shiller related about a localized Los Angeles housing bubble in 1885. In describing the mentality in 1885 Los Angeles, he said that people thought “Los Angeles is special!” He also quoted from an article in the LA Times which was published during the aftermath of the collapse in 1886:

We Californians have learned something. And that is that home prices can’t just go up forever—they have to be supported by something. Never again will Californians make this mistake.

...
For anyone interested in hearing the entire afternoon lecture, you can listen to it right here:

Also, the Case-Shiller house price index for February will be released tomorrow morning (Tuesday).

by Calculated Risk on 4/27/2009 06:20:00 PM

This morning GM offered to exchange equity in the restructured company for the outstanding $27 billion in debt. The bondholders responded negatively ...

Statement from ad hoc committee of GM bondholders via WSJ:

... The current offer is neither reasonable nor adequate. Both the union and the bondholders hold unsecured claims against GM. However, the union's VEBA would receive a 50 percent recovery in cash and a 39 percent stake in a new GM for its $20 billion in obligations; while bondholders, who own more than $27 billion in GM bonds and have the same legal rights as the unions, would only receive a mere 10 percent of the restructured company and essentially no cash.

The offer was made unilaterally, without any prior discussion or negotiation with bondholders and in spite of repeated calls for dialogue.
...
This offer demonstrates that the company and the auto task force, unfortunately, are pinning their hopes on an extremely risky and legally questionable turnaround in bankruptcy court, instead of engaging its lenders and workers in the very type of negotiations that could avoid such a fate.

Apparently the bondholders are preparing a counteroffer.

by Calculated Risk on 4/27/2009 04:38:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Plunged 4.5 Percent in March

Click on graph for larger image in new window.

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 4.5 percent in March, marking the first month-to-month decrease of 2009. The gains during the previous two months, which totaled 4.5 percent, were erased with March’s drop. (February’s increase was revised down to 1.5 percent.) In March, the SA tonnage index equaled just 101.4 (2000 = 100), which is its lowest level since March 2002. The fleets did report higher volumes than in February, as the not seasonally adjusted (NSA) index increased 10.2 percent, but that is well below the 15 to 20 percent range that NSA tonnage usually rises from February to March. In March, the NSA index equaled 104.7.

Compared with March 2008, tonnage contracted 12.2 percent, which was the second-worst year-over-year decrease of the current cycle. In December 2008, the largest year-over-year contraction, tonnage dropped 12.5 percent from a year earlier.

ATA Chief Economist Bob Costello said he wasn’t too surprised at March’s reading. “Many fleets were telling us during March that freight was getting a little better. The problem is that freight should be significantly better in March, which is why the seasonally adjusted index fell,” Costello said. “While the industry is desperate for some positive news, it is unfortunate that March’s data suggests the industry has not hit bottom just yet.”

This suggests the economy was still very weak in March.

by Calculated Risk on 4/27/2009 02:57:00 PM

The previous post on the homeownership rate prompted several questions about what happens when the boomers retire?

Click on graph for larger image in new window.

This graph shows the homeownership by age group for three different time periods: 1985, 2000, and 2007. Back in 1985, the homeownership rate declined significantly after people turned 70. However, more recently, the homeownership rate has stayed above 80% for those in the 70 to 75 cohort, and close to 80% for people over 75.

I expect the homeownership rate to remain high for the boomer generation too. Although there will probably be a geographic shift as the boomer generation retires (towards the sun states) and some downsizing, I don't think the aging of the boomer generation will negatively impact the homeownership rate for 15 years or more.

And that reminds me of an animation I made several years ago showing the U.S. population distribution by age from 1920 to 2000 (plus 2005).

Animation updates every 2 seconds.

The graphs for 1900 and 1910 have a similar shape as 1920. With the medical advances of the 20th Century, we would expect the shape of the distribution to become flatter as fewer people die of illnesses in the prime of their lives.

There are a couple of things to watch for:

The original baby bust. Although 1930 has the general shape of the previous decades, the first evidence of the Baby Bust is apparent. Although 1929 is usually considered the start of the Depression, there was a large segment of America that was struggling economically several years earlier. This shows up in the drop in births. With tough economic times, it is not surprising that many families postponed having children.

Next comes the Baby Boom. The baby boom peaked in the mid-50s, and the 'Pig through a python' shape shows up in all the graphs.

And finally a mini-baby bust. This followed the baby boom, but is nothing compared to the baby bust of the Depression.

by Calculated Risk on 4/27/2009 12:52:00 PM

The homeownership rate is back to the level of Q2 2000. So much for the homeownership gains of the last 8+ years. Gone.

This morning the Census Bureau reported the homeownership and vacancy rates for Q1 2009. Here are a few graphs ...

Click on graph for larger image in new window.

The homeownership rate decreased to 67.3% and is now back to the levels of Q2 2000.

Note: graph starts at 60% to better show the change.

The homeownership rate increased because of demographics and changes in mortgage lending. The increase due to demographics (older population) will probably stick, so I expect the rate to decline to the 66% to 67% range - and not all the way back to 64% to 65%.

The homeowner vacancy rate was 2.7% in Q1 2009.

A normal rate for recent years appears to be about 1.7%. There is some noise in the series, quarter to quarter, so perhaps the vacancy rate has stabilized in the 2.7% to 2.9% range.

This leaves the homeowner vacancy rate about 1.0% above normal, and with approximately 75 million homeowner occupied homes; this gives about 750 thousand excess vacant homes.

The rental vacancy rate was steady at 10.1% in Q1 2009.

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are close to 40 million rental units in the U.S. If the rental vacancy rate declined from 10.1% to 8%, there would be 2.1% X 40 million units or about 820,000 units absorbed.

This would suggest there are about 820 thousand excess rental units in the U.S.

There are also approximately 100 thousand excess new homes above the normal inventory level (for home builders) - plus some uncounted condos.

If we add this up, 820 thousand excess rental units, 750 thousand excess vacant homes, and 100 thousand excess new home inventory, this gives about 1.7 million excess housing units in the U.S. that need to be absorbed over the next few years. (Note: this data is noisy, so it's hard to compare numbers quarter to quarter, but this is probably a reasonable approximation).

These excess units will keep pressure on housing starts and prices for some time.

by Calculated Risk on 4/27/2009 12:19:00 PM

Zach Fox at the North County Times brings us another house "Deal of the Week": Come to Murrieta, 70 percent off!

Murrieta is in south Riverside County, just north of Temecula. This is part of the notorious Inland Empire.

Here is the price history for the featured 1,442-square-foot home:

July 1997: $60,000

August 2006: $330,545

January 2009: $96,000

Zach writes:

When we started Deal of the Week in February, we focused on outliers that posted huge declines. No more. This isn't an outlier; this is pretty much the neighborhood average. Homes similar to this 1,442-square-foot, single-family house have been selling left and right in the $100,000 to $120,000 range in this area of Murrieta. Dipping into five figures isn't uncommon.

I'm always amazed by the peak prices - usually in 2005 and 2006. What is the payment on a $96K home? Probably just over $500 per month PITI with 10% down. (principal, interest, taxes and insurance).