Updated: Case-Shiller 100-Year Chart
By Barry Ritholtz - July 1st, 2009, 7:00AM
Yesterday, we discussed why the Case Shiller Index, which fell 18%, was not yet cause for celebration.
Regular TBP reader Steve Barry created this chart last year which projected forward the ongoing losses for Case Shiller; We first ran this back in December, and it ran all over the internet (mostly without attribution).
Well, its time to update this. Here is Steve’s most recent version:
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hat tip Steve Barry
July 1st, 2009 at 7:15 am
Steve Barry- great chart- it appears that house do have to be affordable after all-
question- is there any adjustments for amenities?- whereas let’s say a house in the 50’s was 3 BR 1 bath 1200 SF- now you are looking at 4 BR 3 baths and 2500+ SF- would it still revert back to the mean even though people are buying more square footage and amenities than they did before?
I wonder if that gets figured in the mix
July 1st, 2009 at 7:49 am
What strikes me most about the chart is the fact that a casual disinterested glance gives you the following impression…
1. Owning a home is a good idea about 50% of the time (at the beginning phases of a secular bull phase – we were referring to “equities” here on TBP just the other day and making the same conclusion – I’m sure bonds would pain the same picture)
2. With the property taxes, insurance, mortgage interest, & casual maintenance costs, it’s a wonder that anyone would ever think that there was VALUE in buying a home if we were NOT in a secular bull…
3. Since so much of the job creation in this country is predicated on homebuilding (from construction workers, to suppliers, to service industries, on up to lenders, bankers, etc.), I wonder how long it will be b4 jobs ever really come back in this country. Furthermore, even if it does recover, I imagine it will be on a downscaled basis (meaning less things to buy to decorate & furnish a house)…
I’m sure I have other things to say as well…
July 1st, 2009 at 8:04 am
I look forward to the inflation that will be the resolution of the rest of the decline.
July 1st, 2009 at 8:07 am
…thanks again Sir Alan of Bubbles
July 1st, 2009 at 8:16 am
The only real difference today with the past is the massive stimulus and part of this is for home prices. I tend to think Steve is closer to the money than Obama’s team, but that is why they have horse races…
A couple of OT’s since the salt mine is again full today….
http://www.telegraph.co.uk/news/uknews/5651825/Benefit-payouts-will-exceed-income-tax-revenue.html
Britain has put themselves in the wonderful position of having more in benefits to the population than taxes they take in….this is California on steroids…
“In 2008/09, gross income tax receipts were £152.5 billion. In the same year, social security benefits cost the Exchequer £150.1 billion.
In 2009/10, the Treasury is expecting to take in £140.5 billion in gross income tax receipts. Social security benefits are projected to be £164.7 billion. ”
…and since California didn’t balance their budget last night, the costs have gone up greatly since midnight….
http://www.latimes.com/news/local/la-me-budget1-2009jul01,0,7817109.story
“A state appeals court panel clouded the budget picture further Tuesday with a ruling that could cost the state nearly $3.5 billion. The judges in the 3rd District Court of Appeal said that since 2007, gasoline-tax funds intended for mass transportation had been improperly diverted by the governor and lawmakers to cover other expenses. The state will appeal to the California Supreme Court, said H.D. Palmer, a spokesman for the Department of Finance.
Meanwhile, Chiang, who acts as the state’s banker, has scheduled a meeting for Thursday morning of a state board that will determine what interest rate the state will pay on the $3 billion a month in IOUs it will begin issuing to contractors and some of California’s neediest citizens, including the elderly, the disabled and the poor. California last issued IOUs in 1992.
Doing so again could have serious repercussions. According to Treasurer Bill Lockyer, the decline in the state’s credit rating that is likely to follow IOUs — as it did 17 years ago — would cost the state $3.4 billion in higher interest rates over 30 years, adjusted for inflation.
Wall Street rating agencies have already warned that they are weighing downgrades to the state’s credit, which would probably take years to recover, Lockyer’s aides said.”
Three Dog Night had a song a few years back now…and one of the lines was “This is the craziest party that could ever be.” I didn’t know they were partying in Sacramento..
July 1st, 2009 at 8:21 am
here some NOT so good news-
“Private Sector Jobs Shrink More than Expected, Down 473,000″
market expected 394,000
July 1st, 2009 at 8:24 am
[...] Chart of 100 year home value Jump to Comments Big Picture [...]
July 1st, 2009 at 8:25 am
@Bruce
“Mama told me not to come”
July 1st, 2009 at 8:27 am
call me ahab Says:
July 1st, 2009 at 7:15 am
question- is there any adjustments for amenities?-
reply:
————
On paper, the methodology looks solid. It purports to track the same house over time and I think it excludes outliers due to foreclosures. If I am incorrect or incomplete, someone may feel free to correct me.
Having said that, I have always had a nagging suspicion that the index is flawed and overstates rises and falls, but I’m not smart enough to pin down the exact problems. (Other than it only concentrates on houses in Crazytown and not the Heartland).
I also suspect that mix is one of the flaws. In good times, less desirable homes would drag it down. In bust times, the most expensive homes would be the ones more likely to be sold and their prices would be declining the fastest … especially in Crazytown.
I live in the Heartland. My home did not double in value or even approach a significant fraction of that. Nor has it fallen by a massive amount, although it finally has started decreasing. In my case, the value drop has more to do with the recession than the housing bubble burst. The value will go up sharply when jobs and employment allow turnover to be restored.
July 1st, 2009 at 8:33 am
Shiller’s chart ended in early 2006…near the height, and I never saw him update it from the original one in his book and in the NYT. I took over, using his own 20 city composite which seemed to be what he based it on. Sure enough, using the 20 city the trajectory remains perfect. Housing has such a downward momentum, it would be quite unnatural for that black line to stabilize and go back up, still way above previous all-time highs. I was very generous not to make that red line projection overshoot to the downside. It shows a bottom possible in 2015. Interesting note: if inflation runs rampant it might soften the low…however if deflation takes hold, it will worsen it.
Most ironic: Shiller himself sees green shoots in this chart:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIbMtWW6cVO4
“At this point, people are thinking the fall is over,” Shiller, co-founder of the home price index that bears his name, said in a Bloomberg Radio interview today. “The market is predicting the declines are over.”
Home prices in 20 major U.S. metropolitan areas fell in April at a slower pace than forecast, the S&P/Case-Shiller home- price index showed today. Today’s Case-Shiller numbers are the latest sign that that the worst of the housing slump may be passing. Sales of existing homes posted gains in April and May, while housing starts jumped in May from a record low.
“My guess would be that home prices are going to level off — they’re not going to keep falling,” Shiller said in a separate interview with Bloomberg Television. Still, it’s “hard to predict” a speculative market, and “I am not optimistic that we’re going to see any sharp rebound.”
July 1st, 2009 at 8:33 am
On a different topic, bad ADP numbers imply a big market pump today. The biggest gains now happen on days when people would otherwise run away.
On a still different topic, I’ve noticed retail sale prices are stabilizing, but inventories look normal to thin and there are few customers. The June and July numbers should be interesting when released.
July 1st, 2009 at 8:36 am
@dead hobo
“The value will go up sharply when jobs and employment allow turnover to be restored.”
The problem is DH, that the Heartland is where we manufacture anything of supposed value in this country (or most of it anyway)…
Nowadays, the USA does less and less of that and only manufactures worthless debt instruments…
July 1st, 2009 at 8:38 am
Question: how valid is an inflation adjustment when the item you are adjusting (home prices) underlies, say, 30% of CPI. Indirectly, of course, through the magical “owners’ equivalent rent”, but nonetheless tied in.
Also, it would be interesting to learn what sort of hedonic adjustment is used for quality/amenities that call me ahab comented about.
Last point: for individuals, local data (if available) probably much more interesting and relevant that national averages.
July 1st, 2009 at 8:41 am
If they are correct then we are still in the early innings of the Greater Depression. The Wealth effect of this plus all the upcoming foreclosures and bankruptcies, tearing at the fabric of society
July 1st, 2009 at 8:41 am
The ADP report covers only private jobs…the Challenger Job Cut numbers came out today, were better than usual, but I thought the discussion of the coming months was interesting:
http://www.nasdaq.com/asp/EconodayFrame.asp
Highlights
“Jobless claims are definitely turning lower as is Challenger’s layoff count, which fell sharply in June to 74,393 vs. 111,182 in May. June’s total is the lowest since the first months of the recession. The report said the results suggest the worst of the economic crisis has passed and that second-half layoff announcements are likely to be below those of the first half. But it warned that government layoffs are likely to be heavy due to cutbacks at the state and local level. The government & non-profit sector along with autos showed the heaviest layoff announcements in the month. ADP’s count will be posted at 8:15 ET, and if it’s as upbeat as the Challenger report, accounts will be putting aside safety and seeking return for their investments. “
July 1st, 2009 at 8:41 am
Does Shiller’s chart account for the fact that houses have been getting much larger and more luxurious than in past years? It seems to me we really have two housing markets, one for big, luxury homes and one for what I would call basic homes. It would make sense that the basic housing market would bottom long before the luxury homes but you won’t see this if you lump them all together.
July 1st, 2009 at 8:42 am
cvienne Says:
July 1st, 2009 at 8:36 am
The problem is DH, that the Heartland is where we manufacture anything of supposed value in this country (or most of it anyway)…
reply:
———-
Only a few of us are bums and the Midwest isn’t one big trailer park that is getting larger. Some people even have jobs above minimum wage and don’t ask about super sizing ever. People here still make things.
July 1st, 2009 at 8:45 am
It looks like this doesn’t bottom til prices are back to mid 1990s level, will we be in a situation where almost everybody without a paid off home will be underwater?
July 1st, 2009 at 8:48 am
@Earl:
Well, the chart itself is based on nationwide averages, so it is also an average of home sizes. The fact that people went nuts, building much larger homes than in the past, homes that need to be heated, cooled, landscaped, maintained at greater costs, just makes it more likely the average is unaffordable and has to fall. In contrast, smaller homes could have more demand and rebound sooner…your point makes sense.
July 1st, 2009 at 8:50 am
dh-
you have a good point- futures have held up well if not improved since the ADP #’s were announced- some other data coming out at 10:00- so we’ll see if it holds up
July 1st, 2009 at 8:55 am
@Steve Barry
“Housing has such a downward momentum, it would be quite unnatural for that black line to stabilize and go back up, still way above previous all-time highs. I was very generous not to make that red line projection overshoot to the downside. It shows a bottom possible in 2015. Interesting note: if inflation runs rampant it might soften the low…however if deflation takes hold, it will worsen it.”
—
- I agree that it would be more unnatural for the line to stabilize and go back up…Why? Creditworthiness vs. the past 30 years will be onerous…Unemployment, higher by mean standards…You still have option ARMS to deal with, and taxes are going to be much higher…
-2nd point, I believe DEFLATION will take hold (or, at minumum, more symptomatically reflect the environment), therefore, no softening of low…
July 1st, 2009 at 8:58 am
I do think it will be hard to remove some that have been on government aid all their lives:
http://www.cnbc.com/id/31652752
Britain’s Queen May Run Out of Money by 2012
“The Queen is naturally very thrifty,” the official told the newspaper.
But accounts show travel expenses for the Royal family rose to £6.5 million in the last financial year, while salaries amounted to £9.9 million, administration £1.5 million, housekeeping and furnishings £700,000, £1.1 million was spent on catering and hospitality and £600,000 on garden parties.
…….I am thinking with houses soon to be a bargain, she could probably live in a nice waterfront condo somewhere on the west coast….probably wouldn’t even need a maid…
July 1st, 2009 at 9:04 am
@ahab @dh
Personally, I’m not reading much into any TEA LEAVES with regards to how the market chews & spits out the ADP number today…Why?
We just flipped the calendar to a new quarter (and we’re coming up on 3 days of BBQ’s)…This is the last chance for the MM’s to get out there and tell all their clients that the S&P is “positive” for the first half, and say w’ve turned a corner, and “see – the market is looking PAST the jobs data”…BS like that…
Technically, the S&P sold off SHARPLY off a .618 fibo retrace (from the 889 recent low – back to the 956 high)…That number was 930, and is a number I’ve been talking about for more than a week now if anybody is listening…I expect that for a few days we could challenge that number (930) a few more times…I wouldn’t even be surprised if we break it to the upside and get some “shorts” to scramble for cover…
I’m actually looking for a scenario that it sgoes past 930 (but then misses 956), and wips straight back from a run-up to some unidentifiable number (like 945-948), and comes settling back to 930, then promptly sells off…
That may happen within the time period of now and next Thursday (July 9th)…JMO…
July 1st, 2009 at 9:12 am
@ahab (part2)
If you notice…Crude did the same type of move…It sold off sharply after doing a .618 fibo retrace (and going just beyond in an attempt to search & destroy)…
Now, today, it’s wheeled right back and is TESTING that number…I really think that how crude behaves in the next two days will tell you where the overall market is going…
July 1st, 2009 at 9:19 am
@Steve Barry,
why do you think the index will level off at 110? (and not ~80 as seen in the 30s?) Is this reached in 2011 according to your predictions?
July 1st, 2009 at 9:40 am
Great stuff SB. All I can say is that mean reversion, like most life’s hard cold realities, can be a real bitch.
Although the data is adjusted to constant dollars, it would be an interesting exercise to examine things based on purchasing power, i.e., for example, how many bushels of corn or ounces of gold would your average 3/2 in 2006 buy relative to, say, 1970. Using the CPI as the dollar deflator misses much of that sort of thing.
July 1st, 2009 at 9:42 am
cvienne-
what about this-
“This has been a government-induced rally,” said Jordan Irving, who helps manage more than $110 billion at Delaware Investments in Philadelphia. “We need to see some real positives coming from internal demand, as opposed to government- related demand, and it’s just not there.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCmsKKqx_Xq0
my opinion, I don’t think people are rushing to get back in the market- strictly big players making markets and setting price
July 1st, 2009 at 9:55 am
it’s all a shell game
“If Geithner’s goal was simply to inject confidence into the system so banks could raise capital, then PPIP really was “the greatest program that never occurred,” as Goldman managing director Scott Romanoff described it, according to The WSJ.”
http://finance.yahoo.com/tech-ticker/article/272422/Fill-or-Kill-Strong-Case-We-Don‘t-Need-Geithner’s-Toxic-Debt-Scheme
the TBTF banks thank you uncle sam- you’re the best- it appears TBTF banks now don’t want to sell these assets- because they would have to take a below market price- weren’t these the very same assets in which there was no market and therefore had little value- I guess with all the fresh capital they would rather risk it and hope values improve- but that’s ok- worst case- uncle sam helps them out again
July 1st, 2009 at 9:57 am
@ahab
I don’t discredit that notion…But of course “who can prove it?”…
That’s why I’m not getting too wrapped up in day to day noise…
Instead, I’m trading it rather technically…
If one wants to make the “government induced rally” case…then for the 2nd half of ‘09, if they want to, they can INDUCE a rally back into long Treasury bonds (which would help get mortgage refinancing back down under 5% 30 year fixed, plus help the Treasury with their funding effort, plus, let the banksters profit some more)…
That’s why I think the rally will TECHNICALLY end pretty soon (somewhere between 930 – 956 on the S&P, and someTIME within the next 7 trading days)…
I’m going to use ANY strength in commodities during the next week to move into long bonds…
July 1st, 2009 at 10:06 am
Great chart, Steve, and many thanks. I am hoping it will reach “80″, just like the 1930s. In any case I will not start looking seriously until we approach 100. Prices are ridiculous in NYC and Fraudfield County, Con Etiquette.
Agree completely with cvienne regarding the next manufactured rally. I am already in ahead of the herd.
July 1st, 2009 at 10:10 am
@lefty
Remember the other week when you were talking about long Treasuries I said it looked like you could cop a FREE RIDE on the TLT from $91-95?…That move finished yesterday…
Here’s hoping for a retrace back down to $92-ish so I can load up the truck!
July 1st, 2009 at 10:16 am
OT: Re: Market Manipulation…
@ Ahab, Left, CV, DH, et al.
I-Man had a vision last night… I was walking down a street of pure gold.
Just kidding. Thats a quote from a great reggae song from long ago. Kudos to whoever can nab that one.
But really,
I and I have overcome the frustration with respect to market manipulation and tape painting chicanery… and wont let it bother me personally, or cloud my trading.
Let it happen. I am going to ignore it henceforth and not let it occupy my brainspace.
I think we should all do the same.
Call it a Tyler Durden overdose if you will, but the manipulation, tho blatant, and diametrically opposed to all fundamental basis… is something that has always occurred. Reading some old Wyckoff last night, he dropped a quote that went something like this:
“The true tapereader doesnt occupy himself with the moves of manipulators, and seeks to only view the tape for what it is in the here and now.” (that’s a paraphrase, dont have the book handy but its from “Studies in Tape Reading” circa 1910.)
There is some guerilla warfare esque spirit to this mindset when you think about it. Elephants leave big footprints and move slow. Easy to track and hunt.
Just thought I’d share.
July 1st, 2009 at 10:16 am
Oh… and Steve Barry:
Great chart!
July 1st, 2009 at 10:17 am
observation-
Re planned layoffs @ 15 month low-
doesn’t it come to a point that a business can no longer let any more people go and still be a going concern?- that if they let any more people go it would mean going out of business and not layoffs?
July 1st, 2009 at 10:17 am
@super trooper:
I leveled it off at 110 or so as my “best case”…it is very possible it could drop further, but we are in unchartered waters.
July 1st, 2009 at 10:22 am
@I-man
“Let it happen. I am going to ignore it henceforth and not let it occupy my brainspace”
You said it yesterday too…[That you were curiously in favor of everything inching higher]…
I keep looking at the VIX (which is now down around 25)…Puts are getting cheaper, & cheaper, & cheaper…Let the band play on!
July 1st, 2009 at 10:25 am
“There is some guerilla warfare esque spirit to this mindset”
The mindset of the small successful trader. Target weakness and complacency. Strike quickly, decisively and firmly, without fear or pity, then melt back into the night before the big army can retaliate.
We are homies, dude.
July 1st, 2009 at 10:26 am
I-Man Says-
“There is some guerilla warfare esque spirit to this mindset when you think about it. Elephants leave big footprints and move slow. Easy to track and hunt.”
good point- and I agree-
was only trying to point out that the market prices are set by the market makers and have little to do with the general public buying into the rally- mentally or literally-
the question is out- if the public will follow- lemming like- the market makers
July 1st, 2009 at 10:31 am
@lefty
“Strike quickly, decisively and firmly, without fear or pity, then melt back into the night before the big army can retaliate”
OK – here’s a bet…When FCX hits $56, all of a sudden some news will come out that the manufacturing demand in China will turn out to NOT be as robust as they have been talking about for the past few months…Copper prices take a hit, commodities hit…first straw to break the “nonsense” about a turnaround…
July 1st, 2009 at 10:31 am
@lefty
“Strike quickly, decisively and firmly, without fear or pity, then melt back into the night before the big army can retaliate”
OK – here’s a bet…When FCX hits $56, all of a sudden some news will come out that the manufacturing demand in China will turn out to NOT be as robust as they have been talking about for the past few months…Copper prices take a hit, commodities hit…first straw to break the “nonsense” about a turnaround…
July 1st, 2009 at 10:56 am
Speaking of guerilla warfare, Zero Hedge and Karl Denninger are having at it with Dennis Kneale, who has been attacking “cowardly bloggers” for ridiculing his “end of recession” call.
I will come on your show Dennis, and I will call you the dumbest a**hole of many dumb a**holes on CNBC. Furthermore I will point out that your “buy calls” have been a disaster for millions of investors. If I was as dumb as you I would have to kill myself.
July 1st, 2009 at 11:01 am
Steve,
Nice chart. Looks like your original has proven to be accurate. You’ve made many great calls on here over the last two years.
July 1st, 2009 at 11:02 am
I’m sorry but this chart is nonsense. Any decades long observer and investor in real estate can tell you this chart is utter nonsense no disrespect intended to its creator(s).
http://www.erictyson.com/articles/20090327
July 1st, 2009 at 11:03 am
@LB,
I think on his show last night, Kneale called the readers of ZH “dickwads”
Have people noticed the latest spin today? It’s the “we just had one of our best quarters in years!” talking point.
July 1st, 2009 at 11:12 am
b22-
pretty sure it was dickweeds- not sure of the distinction between the two
July 1st, 2009 at 11:15 am
this was posted by Simon on a previous thread regarding the Tyler Durden,Dennis Kneale th