Thursday, October 02, 2008

Beantown Bust: Boston CSI and RPX July 2008

I’m splitting out the monthly S&P/Case-Shiller (CSI) results for Boston into its own recurring post as the existing home sales data for the region can be, at times, released as much as a week earlier.

Further, I’m adding the Radar Logic (RPX) data to post in order to draw a clear comparison between the two series and to leverage the RPXs higher degree of sensitivity to the seasonality of the regions housing market.

The S&P/Case-Shiller (CSI) Home Price index together with the Radar Logic (RPX) for Boston represent the most accurate indicators of the true price movement for both single family homes and the entire residential real estate market as a whole (singles, multi and condos).

For July, both the CSI and RPX showed continued weakness with the CSI declining 5.35% on a year-over-year basis while the RPX dropped a more significant 14.78% over the same period.

As you can see from the chart below (click for larger), although the RPX captures a greater degree of seasonality, both series are very strongly correlated.

Also, note that the RPX is giving us a strong indication that the spring’s seasonal uptick in prices has completely given way in what appears to be the most brief seasonal peak in at least the past eight years.

This price slide is also signaling that the CSI will likely decline in August and that the coming fall and winter seasonal price slide may be significant.

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, annual and peak percentage changes to the Boston CSI home price index from the 80s-90s housing bust to today’s bust.

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.

The “annual” chart compares the percentage change, on a year-over-year basis, to the Boston CSI from the last positive value through the decline to the first positive value at the end of the decline.

In this way, this chart captures only the months that showed monthly “annual declines”.

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.

The final chart shows that the Boston housing market has been, in a sense, declining steadily since early 2001 when annual home price appreciation peaked and the intensity of the housing expansion began to wane (click on following chart for larger version).

It appears that that the main thrust of the housing expansion occurred “in-line” with the wider economic expansion that was fueled primarily by the dot-com bubble and that since the dot-com bust, the housing market has never been quite the same.