Case-Shiller: Beware the Head Fake
There was some reason to take comfort about yesterday’s data from the Case-Shiller Index—the rate of price declines slowed for the third straight month nationally. But before you break out the champagne and check books, get a dose of what the Wall Street Journal had to say yesterday: The bloodletting may not be over. Here’s…
There was some reason to take comfort about yesterday’s data from the Case-Shiller Index—the rate of price declines slowed for the third straight month nationally. But before you break out the champagne and check books, get a dose of what the Wall Street Journal had to say yesterday:
The bloodletting may not be over. Here’s why: If price declines accelerate for the mid-to-upper end of the housing market, then that could generate enough large declines in values—even among a small segment of the overall housing market—to push the index lower still.
Meanwhile, here in New York (where there’s plenty of “mid-to-upper” properties) housing prices ticked down another 1.6 percent in April for a total of 21 percent off the June 2008 high, as the chart above shows.
Dave, you can claim that the stock market’s moves over the past few months were an over-reaction. I would agree – we saw 6,600 on the Dow only because of panic selling. Let’s be honest though – the stock market and housing pricing we saw for the past few years was equally irrational – the result of loose monetary policy and over-leveraging. The stock market (reasonably in my opinion) is pricing in 2003 levels, but housing has not had a similar correction from its irrational highs, if we are going to use the stock market as a metric for the housing market. I never believed that we were headed for a great depression but an unprecedented correction had to be expected after an unprecedented and unrealistic boom in all assets over the past five years.
I tend to discount the stock market for exactly the reason you mention – it is too volatile and does not accurately reflect fundamentals. Here is the fundamental issue for housing – unemployment continues to rise. Until that ceases, housing is only going one way. Confidence is rebuilding, I agree, but that does nothing to replace the thousands of high paying wall street jobs that were lost and aren’t coming back.
I think bkhabitant has it right.
Dave, in some ways I hope you are proven correct, but I think you are too optimistic. Think the damage done to our economy is still quite significant and the damage done to consumer psyches will not heal until long after the finance sector is fully stabilized.
I think the worst is over for residential real estate, but that doesn’t mean price declines won’t continue in NYC or other areas that were among the last to begin declining. I think the bottom is around 2001/2002 pricing and cannot come until we see some bankruptcies among new developments (because some developers literally CANNOT lower prices without going bankrupt).
dibs, all very insightful, but what does it have to do with this post?
bkhabitant: The collapse in the stock market was truly a panic reaction to all the shit going on in the banking/mortgage/finance sectors. It was the fastest way out for the world and a flight from risky assets, that’s all. Confidence is rebuilding, risky assets are somewhat back in favor.
If you overlay the large moves (volatility) in the stock market over the strength & weakness of the economy, the picture will become clearer.
Again, what happened in the past is history. It was an unprecedented selloff in the market because people actually started to believe all that crap about another “Great depression” That belief has now been rightly categorized as “lunatic fringe” so the market is rising.
dave – I didn’t say short term either. so what was the point of your essay this morning?
The stock market is up significantly over the last three months but off of 1998 levels. We are still off 40% from the peak and the market (Dow, Nasdaq and S&P are at 2003 levels currently). Housing prices are still above 2003 levels, and if housing is indeed a lagging indicator, this would suggest there is more room to the downside.
Additionally, one other big factor in driving demand for housing is employment, and the unemployment rate is well above where it was in the last downturn (and still moving higher I might add).
I am not one who thinks real estate pricing will return to mid-1990s levels as some have argued, but if we are going to use the stock market as an indicator of housing strength, then housing is only moving one way from here.
Joe: reread my post. Nowhere did I say that NYC property was headed back up in the short term. If you don’t understand the stock market’s “leading indicator” status for the economy I suggest you go do some reading.
dave-o that’s hogwash. so your arg is: A. US stocks go up, B. US econ activity goes up, C. everyone buys NYC property? Both of those links have a lot of holes in them.
Why didn’t you go for the simple and relevant argument from today’s news:
New York City increased its population more than any other large U.S. city, helped by immigration, adding 355,056 residents between 2000 and 2008, the U.S. Census
Bureau said.
Dave- I agree with most of your post. But we’re talking about housing prices and those still have much further to go down- regardless of the market.
The government is trying to head off the next bullet- student loans, starting today your payment can be determined based on income. All of these are good signs that the rope around consumers necks are loosing a bit but that does mean they have the means or the ability to go out and buy a home tomorrow.