The Almost Daily 2¢ - Sunshine Indictor Still Dark

Longtime readers know that my overall outlook for the U.S. economy is grim.

To me, it appears clear that our current economic decline did not start in December 2007 but rather in 2001 when our typical boom and bust business cycle pattern gave way to a, more or less, continuous bust only briefly interrupted by the main thrust of our historic and phenomenally immense and delusional late-cycle credit and housing bubble.

Without the credit and housing bubble our “jobless recovery” would have been a “recovery-less recovery” or, more precisely, no recovery at all.

To put things in perspective a bit, during the “recovery” period following the dot-com bust our economy regained all the jobs lost in the recession and even added 5.622 million new jobs.

Unfortunately though, over the same period the workforce population grew by over 19 million individuals.

Worse yet, since the start of the housing recession in December 2007 our economy has lost 5.73 million jobs.

So we are below the actual employment level seen in late 2000 and we are sliding still further… an unprecedented trend for the post-WWII U.S. economy.

Nonetheless, all we have is history to compare against in order to determine when and how this latest cyclical decline (possibly another sub-cycle in a longer trending decline) will play out.

In an effort to gain a fairly timely and accurate account of the trend I have formulated the “Sunshine Indicator” (click for much larger image) which exploits a pretty solid relationship between industrial production and the national unemployment rate.

Currently the indicator is still flashing “decline” but it will be interesting to see its pattern shape up over the next three months.

More Pain, No Gain: S&P/Case-Shiller Preview for December 2008

As I had noted in a prior post, given their strong correlation, the home price indices provided daily by Radar Logic can be effectively used as a preview of the more popular monthly S&P/Case-Shiller home price indices.

The current Radar Logic data reported on residential real estate transactions (condos, multi and single family homes) that settled as late as December 19 2008 appears to indicate that price declines are continuing in every market while accelerating notably in some.

Clearly, the impact of the recent stock market crash and ongoing economic crisis is bearing down on both consumer sentiment and, more fundamentally, credit availability resulting in a significant pullback in spending on homes and other costly purchases.

As the economic fallout continues, look for more markets to experience a re-acceleration of price declines.




Phoenix, Miami, San Francisco, and Los Angeles are clearly continuing their historic price slide as the number of distressed sales climb and buyer sentiment relents under the weight of the recessionary conditions.



Boston, Denver and Chicago all appear to be following the typical seasonal pattern of increasing prices during the high transaction months of the spring and early summer and price declines during the fall and winter but it is important to note that prices are clearly trending and even, most notably for Boston, accelerating lower.


The Washington DC and New York regions are nearly perfect examples of markets that have broken down under the strain of the housing bust and wider economic turmoil showing consistent price declines throughout spring and summer months where normally strong seasonal sales patterns typically brings increasing prices.

Commercial Calamity? S&P/GRA Commercial Real Estate Index June 2008

Like the MIT/CRE Property Index, Standard & Poor’s also tracks commercial real estate (CRE) prices for various commercial property types.

The recent results reveal a marked slowing of price appreciation across all classes of commercial real estate with the retail component even declining on a year-over-year basis.

It’s important to note that the June results reflect an environment for commercial real estate that is comparable to the period that followed the dot-com collapse.

This appears to indicate that a more prolonged market downturn will be seen this time around with a more pronounced period of depreciation.

The charts below show the National index and the component indices since 1994 (click for larger).

Comparing the MIT/CRE and S&P/GRA indices, it’s apparent that during economic slowdowns the GRA index tends to flatten out while the MIT indices indicate outright decline.

For example, the MIT/CRE appears to have captured a contraction in commercial properties that occurred following the “dot-com” bust while the S&P/GRA never showed declines on a year-over-year basis… only a steep decline in appreciation and several months of flattening.

For now, it’s important to reflect on both reports until there is more clarity on the state of the commercial property markets.

Bonus Question(s) of The Day?

Let me be the first to give a cheer for the Invisible Hand! … Hip Hip Hooray!... You go Hand!

So, why do you think the markets sold off so vigorously today? What’s next?

Collapsedachusetts Existing Home Sales Preview: February 2008

Sources inside the Massachusetts Association of Realtors (MAR) report that next week’s monthly existing home sales results will show that February single family home sales crashed 22.9% on a year-over-year basis while condo sales collapsed 34.6% over the same period.

Further, the single family median home value declined 4.6% on a year-over-year basis to $310,000 while condo median prices decreased 6.7% to $252,000.

It’s also important to note that February’s single family home sales count was the lowest February count on record since 1996 and at 1857 units sold was 26.91% below the record peak set in February 1999 and 22.9% below the more recent peak of February 2007.

The following charts (click for larger) show the decline in single family home sales since 2005.

Notice that February 2008 is registering a home sales count well below even the 2007 level as well as indicating that the March’s results will likely be well below 3000 units, a significant decline.


After over two years of declining home sales, weakening home prices and now looming recession it appears that Massachusetts may have just entered the price “free-fall” phase of the housing decline where home prices continuously drop even through the spring months which are typically strong in the region.

Stay tuned as next week's S&P/Case-Shiller home price index results will be available for Boston likely showing the most significant decline in the last 12 months.

The Almost Daily 2¢ - Twin Peaks?

Following up on a prior post, take a look at the trend and most recent state of the S&P 500 index and compare it to the last major bear market conditions that followed the dot-com bust.

There is a host of very interesting technical similarities (which are noted below) that may indicate that we have entered or are just about to enter another bear market where on average the S&P 500 index retraces 20 – 30% from its prior peak.

It’s important to keep in mind that, at best, a bear market can be viewed as a transition into an period where there is a prolonged bias to sell into strength resulting in a successive series of lower highs yielding a clear downward trend.

At worst, there are periods (days or weeks) where particular stocks and the index as a whole will crash hard.

Study the following image (click for very large and clear version) of the S&P 500 index from 1995 to today then read below for the technical blow by blow.

Notice that I’ve updated the chart to reflect the fact that recently the 50 day moving average broke through the 400 day moving average signaling a second “cross of death” that I will term the “cross of far more death“ for all future posts.

Notice also, that I’ve added both the “effective” federal funds rate and an overlay indicating the period of the last recession.

As you can see, entering the last bear market, the Fed cut rate significantly taking it from 6.5% at the start of the bear market to 1.25% in the trough.

It’s important to note that although the Federal Reserve’s response was dramatic, the market still resulted in an over 48% decline.



THEN (1998 – 2000 Top)

• A. October 1998 – S&P 500 gives early warning sign by crossing its 400 day simple moving average (SMA). Notice also that the 50 day SMA breached the 200 day SMA.
• B. October 1999 – S&P 500 gives a second signal by crossing its 200 day SMA after a solid twelve month expansion. 50 day SMA touches the 200 day SMA.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
• F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
• G. 200 day SMA crosses 400 day SMA.

NOW (Today’s Top?)

• A. June 2006 – S&P 500 gives early warning sign by crossing its 400 day SMA. Notice also that the 50 day SMA breached the 200 day SMA.
• B. March 2007 – S&P 500 gives a second signal by falling near its 200 day SMA after a solid nine month expansion. 50 day SMA similarly depressed.
• C. Three prominent but decelerating peaks set up the top.
• D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
• E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
• F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
• G. TBD

Needless to say then next few weeks will be white-knuckle time…

Crashachusetts Existing Home Sales and Prices: January 2008

Today, the Massachusetts Association of Realtors (MAR) released their Existing Home Sales Report for January 2008 and simultaneously Standard & Poor’s released their Case-Shiller Home Price Index for December 2007 both showing, perfectly clearly, the truly dire circumstances that have now befallen the Bay State’s housing market.

Whether it was a slow depression brought about by over two solid years of steadily declining home sales and prices, the credit crunch, a looming recession, a palpable increase in inflation of necessities like food and fuel or just simply a change in attitudes toward the notion of a house as a vehicle for wealth, the regions housing markets have now hit a dangerous tipping point.

It appears that we have entered the “price freefall” phase of the housing decline where mounting inventory, declining sales, and negative sentiment all combine to result in plunging home prices which, quite possibly, may continue to decline substantially even through the spring and summer months which are typically strong periods in any selling season.

Of course Massachusetts’s Realtor leader Susan Renfrew, who seems to find a silver lining in every storm, projects a sense of confidence and “opportunity” in part created as a result of the federal government bailout package.

“Sales in any given month are a result of buyer activity 60 to 90 days prior, and there is no question January reflects the anxiety people were feeling about the economy that last two months of 2007 … However, this continues to be a buyer’s market and there is opportunity. That combined with low interest rates and the economic stimulus package recently signed by President Bush, should help the market.”

These are troubling times indeed…

MAR reports that in January, single family home sales plummeted 27.7% as compared to January 2007 with an 8% increase in inventory translating to a truly massive 15.4 months of supply and a median selling price decline of 5.6% while condo sales plunged 33.7% with a 1% increase in inventory translating to a startling 16.6 months of supply and a median selling price increase of 3.5%.


The S&P/Case-Shiller Home Price Index for Boston, which is the most accurate indicator of the true price movement for single family homes, showed accelerating prices declines (prices are falling faster) with Boston declining 3.3% as compared to December 2006 leaving prices now 9.8% below the peak set in September 2005.

To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement and peak percentage changes to the S&P/Case-Shiller home price index for Boston (BOXR) from the 80s-90s housing bust to today’s bust (ultra-hat tip to the great Massachusetts Housing Blog for the concept).


The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.

Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out but that the decline was not quite a sheer as what we are seeing today.

The “peak” chart compares the percentage change, comparing monthly Boston index 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 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

Notice that peak declines have been more significant to date and, keeping in mind that our current run-up was many times more magnificent than the 80s-90s run-up, it is not inconceivable that current decline will run deeper and last longer.

As in months past, be on the lookout for the inflation adjusted charts produced by BostonBubble.com for an even more accurate "real" view of the current market trend.

January’s Key MAR Statistics:

• Single family sales declined 27.7% as compared to January 2007
• Single family median price decreased 5.6% as compared to January 2007
• Condo sales declined 33.7% as compared to January 2007
• Condo median price increased 3.5% as compared to January 2007
• The number of months supply of single family homes stands at 15.4 months.
• The number of months supply of condos stands at 16.6 months.
• The average “days on market” for single family homes stands at 143 days.
• The average “days on market” for condos stands at 165 days.