Tuesday, July 28, 2009

S&P/Case-Shiller: May 2009

NOTE: Data delayed by a boat ride up the Seine, a leisurely sitting in the park by Pont Neuf and a stroll up the Champs Elysees.

Today’s release of the S&P/Case-Shiller home price indices for May 2009 showed the first month-to-month gain in 34 months (almost 3 years!).

Clearly this is a notable development but it’s important to put today’s results in perspective before getting too confident that even the initial leg of the declining trend has ceased.

First, it’s important to recognize that while many of the more seasonal series (Boston, Cleveland, Washington DC, etc.) are showing typical strong spring-summer bounces, many of the hardest hit markets (Phoenix, Los Angeles, Miami, etc)… markets with almost no seasonal variation, are showing only tepid declines.

Further, many of the more seasonal markets, at the moment, are some of the weakest and appear poised (after the typical spring-summer bounce completes August and September) to drop to new lows throughout the fall.

So, today’s Composite results are being, in a sense, propped up by the collective movement of many strong seasonal markets that are themselves actually very weak but are currently at their strongest point in the season.

Another way of looking at it is to simply view the seasonally adjusted S&P/Case-Shiller data showing both Composite series declining since last month.

Also, looking at the 90s0-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Further, is important to remember that the 90s housing recovery played out against the backdrop of a truly unique period of growth in the wider economy fueled primarily by novel and ubiquitous technological change (cell phones, internet, personal computers, telecommunications, etc).

The 10-city composite index declined 16.83% as compared to May 2008 while the 20-city composite declined 17.06% over the same period.

Topping the list of regional peak decliners were Phoenix at -54.46%, Las Vegas at -53.36%, Miami at -48.52%, San Francisco at -44.97%, Detroit at -44.86%, San Diego at -42.05%, Los Angeles at -41.89%, Tampa at -41.05%, Minneapolis at -35.85%, Washington DC at -32.49%, Chicago at -26.64%, Seattle at -22.55%, Atlanta at -22.55%, Seattle at -22.54%, Portland at -21.20%, New York at -21.00% and Boston at -18.46%.

Additionally, both of the broad composite indices showed significant declines slumping -33.27% for the 10-city national index and 32.29% for the 20-city national index on a peak comparison basis.

To better visualize the results use Blytic.com or the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year and month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are still likely less than half of the way through the portion of the decline in which will be seen fairly significant annual declines (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.