by Calculated Risk on 5/29/2012 07:55:00 PM

Economist Tom Lawler wrote today:

I put “seasonally” in quotes, as there have substantial changes in the purported “seasonal” pattern of home prices since the housing market cratered. The reason, of course, is that there is a marked “seasonal” in the distressed-sales share of home sales, which peaks in the late winter months and hits a trough in the summer months. Not coincidentally, the “shift” in the “seasonal” pattern of home prices has been one where home prices are “seasonally” much weaker than they used to be in late winter, and “seasonally” much strong than they used to be in the summer.
...
Everyone “knows” why, and since the “cause” of the apparent wider “seasonal” swings is known (and someday will go away), it’s not rightly correct to call such swings “seasonal.”

The following graph shows the change in the seasonal factor over time using the Case-Shiller National Index.

Click on graph for larger image.

Most of the wild "seasonal" swings are related to foreclosures. As Lawler noted, foreclosure sales are fairly steady throughout the year, and conventional sales have a seasonal pattern. So in the winter foreclosures are a higher percentage of sales, and that pushes down the NSA prices.

The second graph shows the year-over-year change in the seasonal factor. Clearly something started to happen around 2005.

It seems that the seasonal factors started changing in 2005 - when prices were still going up.

Also, it appears that the change in the seasonal factors has slowed, and will probably start to reverse soon.

Lawler also commented that he thinks there is a "better than even shot" the National HPI will show a year-over-year gain next quarter. That would be a 6% increase in the NSA index in Q2 (or about a 2% increase in the "seasonally adjusted" index). My guess is the index will turn positive on a year-over-year basis later this year.

Earlier on house prices:
• Case Shiller: House Prices fall to new post-bubble lows in March NSA
• Real House Prices and Price-to-Rent Ratio at late '90s Levels

by Calculated Risk on 5/29/2012 03:53:00 PM

Less than four months ago, I wrote The Housing Bottom is Here and I pointed out that the house price data had a significant lag so we had to look at other data for clues. The post title refers to the many emails I received back in February: "bold call", "gutsy call", "you are insane" ... and many more.

I could still be wrong, but it sounds like Robert Shiller and Karl Case are coming around to a similar view. Here are couple of quotes from a CNBC interview this morning (video below):

Karl Case: “We lag of course – January, February and March moving average – and so we lag, and the indicators for the last three or four months on the quantity side have been real positive. We look like a bottom. You have to pick to find real negatives.”

CR: As I've noted before, this is just a possible bottom for nominal prices (not adjusted for inflation). We could see further real price declines, as Professor Shiller noted:

Robert Shiller on CNBC: "[The futures] go out to 2014. It is projecting something like 2% or 3% per year [increase], which by the way, is just the inflation rate. If you correct for the inflation rate, they [futures] are predicting no action."

Earlier on house prices:
• Case Shiller: House Prices fall to new post-bubble lows in March NSA
• Real House Prices and Price-to-Rent Ratio at late '90s Levels

by Calculated Risk on 5/29/2012 01:51:00 PM

From the Dallas Fed: Texas Manufacturing Expands but New Orders Remain Flat

Texas factory activity continued to increase in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 5.5, suggesting growth continued at about the same pace as last month.
...
The general business activity index remained negative for the second consecutive month and edged down from -3.4 to -5.1.

Labor market indicators reflected slightly slower labor demand growth and shorter workweeks. Employment grew again in May, but the pace continued to slow; the index receded from 11.8 to 8.5. Eighteen percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index remained negative but edged up from -4.6 to -2.2.

This was below expectations of an increase in the general business activity index to +3.0.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

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

The ISM index for May will be released Friday, June 1st, and these surveys suggest some decrease from the 54.8 reading in April.

by Calculated Risk on 5/29/2012 11:03:00 AM

Another Update: Case-Shiller, CoreLogic and others report nominal house prices. It is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1998 and early 2000 levels depending on the index.

Nominal House Prices

Click on graph for larger image.

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through March) 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 February 2003 levels, and the CoreLogic index (NSA) is also back to February 2003.

Real House Prices

The second graph shows 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 Q4 1998 levels, the Composite 20 index is back to January 2000, and the CoreLogic index back to May 1999.

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

Price-to-Rent

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.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

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

On a price-to-rent basis, the Case-Shiller National index is back to Q4 1998 levels, the Composite 20 index is back to March 2000 levels, and the CoreLogic index is back to August 1999.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels.

by Calculated Risk on 5/29/2012 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for March (a 3 month average of January, February and March).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the National index.

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Pace of Decline in Home Prices Moderates as the First Quarter of 2012 Ends, According to the S&P/Case-Shiller Home Price Indices

Data through March 2012, released today by S&P Indices for its S&P/CaseShiller Home Price Indices ... showed that all three headline composites ended the first quarter of 2012 at new post-crisis lows. The national composite fell by 2.0% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. The 10- and 20-City Composites posted respective annual returns of -2.8% and -2.6% in March 2012. Month-over-month, their changes were minimal; average home prices in the 10-City Composite fell by 0.1% compared to February and the 20-City remained basically unchanged in March over February. However, with these latest data, all three composites still posted their lowest levels since the housing crisis began in mid-2006.
...
“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time."

Click on graph for larger image.

The first 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 34.1% from the peak, and up 0.2% in March (SA). The Composite 10 is at a new post bubble low Not Seasonally Adjusted.

The Composite 20 index is off 33.8% from the peak, and up 0.2% (SA) from March. The Composite 20 is also at a new post-bubble low NSA.

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

The Composite 10 SA is down 2.8% compared to March 2011.

The Composite 20 SA is down 2.6% compared to March 2011. This was a smaller year-over-year decline for both indexes than in February.

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

Prices increased (SA) in 15 of the 20 Case-Shiller cities in March seasonally adjusted (12 cities increased NSA). Prices in Las Vegas are off 61.5% from the peak, and prices in Dallas only off 6.7% from the peak.

The NSA indexes are at new post-bubble lows. I'll have more on prices later