Wednesday, 30 January 2008

Case-Shiller Home Prices Cliff Diving

There continues to be no silver lining in US housing data. Yesterday the Case-Shiller Home Price Index fell to another record low for year over year price declines. From Standard & Poors:

Data through November 2007, released today by Standard & Poor’s for its S&P/Case-Shiller® Home Price Indices, the leading measure of U.S. home prices, show broadbased declines in the prices of existing single family homes across the United States, marking the 11th consecutive month of negative annual returns and a full two years of decelerating returns.

The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Indices. The 10-City Composite’s annual decline of 8.4% is a new record low. October’s data, published last month, was the first report of a record low in more than 16 years, with a decline of 6.7%. The previous largest decline on record was 6.3% recorded in April 1991. In November, the 20-City Composite recorded an annual decline of 7.7%. The 20-City Composite does not have data prior to 2000, so it cannot be compared to the 1991 time period. It does, however, follow the 10-City Composite closely, as portrayed in the graph above.

“We reached another grim milestone in the housing market in November,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “Not only did the 10-City Composite post another record low in its annual growth rate, but 13 of the 20 metro areas, each with data back to 1991, did the same. If you look at the monthly figures, every MSA has now posted three consecutive monthly declines. Eight of these MSAs, in addition to the two composites, have had more than 12 consecutive months of falling prices. Fourteen of the 20 MSAs, in addition to the two composites, recorded their single largest monthly decline on record in November. For the 10-City and 20-City composites this was a decline of 2.2% and 2.1%, respectively, over October”

The chart above tells the story. Year over year price rises set records in late 2004 and now the unwinding of the housing bubble is leading to record year over year price declines. Monday also saw some horrible data on New Home Sales. From the Census Bureau:

Sales of new one-family houses in December 2007 were at a seasonally adjusted annual rate of 604,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent below the revised November rate of 634,000 and is 40.7 percent below the December 2006 estimate of 1,019,000.

Sales for Sep, Oct and Nov were also revised down -0.9%, -2.0% and -2.0% respectively. Supply of new Homes hit a 9.6 months at the current sales rate which is the highest since October 1981.

The above data shows that little in-roads have been made into shifting the excess inventory of homes on the market. No doubt buyers are aware of falling home prices and are happy to sit on the sidelines knowing they will be able to get lower prices down the road.

Despite interest rate cuts and mortgage rate freezes the reality is, there are no quick fixes for housing. Individuals are slowly getting used to the idea that housing will not turn around in a matter of months. It will be a matter of years.