I have been hearing this tired line since 2006. Its time to retire it as a misleading foolish bit of money-losing misdirection.

Lets take a look at the full price index — 1987 to 2012 — and I have boxed off the section I want to focus on:

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If we were to zoom in on that box covering the peak downwards, it looks like this:

click for ginormous version

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Its pretty self-evident that claiming a data series is 2 months old during a 72 month slide borders on insanity. The overall trend has been devastating, the entire 60 day lag down . . .

What about prices and homes sales stabilizing?

Well, not exactly — even that bottom scraping that looks like stabilization is the result of a massive concerted effort between multiple bailouts, fed actions and tax credits:

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Source Street Talk Live by way of Charles Smith

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Previously:
Closer Look at the Housing Recovery Meme in 5 Parts (April 17th, 2012)

1. Debunking the Housing Recovery Story: Shadow Inventory.
2. Home Affordability Reality Check: Can Buyers Afford Homes?.
3. The Problem With Home Prices (Still too high).
4. Foreclosures: A Decade Long Overhang.
5. Fear of Buying: The Psychology of Renting.

Category: Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Bad Dope: “But Case Shiller Data is 2 Months Old””

  1. MayorQuimby says:

    Trying to expand credit supply withOUT deleveraging is like trying to increase your car’s RPMs by putting water in your gas tank. Excess credit has to burn off, asset prices fall and THEN we can restart the machine.

  2. rd says:

    Also, houses are illiquid with a complex, long closure process. From initial listing to closing would typically take 3-4 months in a hot market. In a down-market, that can be 6 to 12 months. A lag of two months in the data in Case-Shiller is well within that overall time-frame for how quickly the housing market can react, especially in down or flat markets.

    The complaints are probably coming from people who want to use indicators like traffic in open houses to signal a definitive turning point in the housing market.

    The illiquidity and complex closing process will also mean that the housing bottom will look like a long extended U instead of a sharp V like we often see in the stock market. For a while, it will look like an L.

  3. VennData says:

    Let’s do the policies that got us here again!

  4. Tim says:

    So, barring some as yet revealed additional ugliness/overhange, guesses anyone on when we’ll see a bottom? I say 2013.

    Zillow has an interesting chart out today:

    http://www.zillow.com/blog/research/2012/04/24/u-s-home-values-post-largest-monthly-gain-since-2006-majority-of-markets-forecasted-to-hit-bottom-by-late-2012/

  5. Pantmaker says:

    420 reference noted.

  6. BennyProfane says:

    The complaints are coming from people who have a vested interest in the market churning again, or at least stabilizing, like Zillow, or simply from people who made the mistake of calling a bottom, like calculated Risk recently, or Cramer in ’09, and now have to justify that call. Cramer has been quiet on the subject for some time, though. He learned, and now he’s back to the pump and dump bozo show.

  7. The Window Washer says:

    rd,
    Also, houses are illiquid with a complex, long closure process. From initial listing to closing would typically take 3-4 months in a hot market. In a down-market, that can be 6 to 12 months.

    Wrong on “Illiquid”, right on “typically”

    The long drawn out process of selling and buying a house is buyers/sellers giving up liquidity for a chance at a better “net to seller”.

    11:42pm last night I got and email with this line in it:
    Do you have any extra CASH laying around? I have a great deal in P#### Park area? Let me know. JH

    He could be closing within 48hrs, I’ve seen people close at 11pm on a Saturday night. So you can buy/sell a house faster than a check deposited at your bank on Friday will clear.
    Now people say that’s not how “normal” people buy houses but that’s the point. Normal people bought houses like this more often 20-30 years ago before everything was levered to the hilt.
    I can close in 24-48hrs with a mortgage if I have enough to put down.

  8. Thalamus says:

    We are at a temporary housing lull, but we have another 3 years of decreasing house prices due to the upcoming recession/depression later this year.

  9. The Window Washer says:

    To the point of the post, which I didn’t make clear above.

    If you give up the “typical” drawn out home selling process you get the “right” price.

    So if it’s showing $100k for a house lagged two months and the market is going UP. You could walk out today and buy that house “on the spot” for $100k cash in hand. Think of someone that wants to be a move up buyer, in a rising market, and someone knocks on the door add offers to buy their house for what the one across the street sold for 2 months ago. Deal done.

  10. wally says:

    The defensiveness seems to be getting more strident.

  11. wally says:

    “… looks like stabilization is the result of a massive concerted effort…”

    Well, sure, the patient recovered, but he took penicillin so it wasn’t a REAL recovery.

  12. rd says:

    @The Window Washer:

    Yes it is possible to buy and close very quickly but it needs to be an entirely or largely cash deal AND you have to be willing to accept a lot of risk.

    You would typically want a survey, home inspection, and a title search so that you have a clue as to whether or not the property is what it is purported to be. This is very difficult to execute in a short time frame. Pre-boom, I saw these items kill deals. These will be even more important now with many properties that will have problems with potentially all three of these items.

    Most people who are buying or selling homes are making transactions that will impact a decade or more of their lives as well as a high percentage of their net worth. This process generally takes longer than the time it takes to buy a TV.

  13. NoKidding says:

    I don’t buy Window Washers definition of illiquid. Something with a median price higher than median annual income in a country with a zero savings rate almost has to be illiquid – the average market participant needs to ask a creditor for permission to buy.

  14. streeteye says:

    I think you should some point-counterpoint posts with Calculated Risk on the case for the bottom vs. a further leg down. Here’s his case back in Feb -

    http://www.calculatedriskblog.com/2012/02/housing-bottom-is-here.html

    The point on Case Shiller is it’s a lagging indicator, one would expect sales to pick up, then inventories to go down as shadow inventory gets pulled into the market and worked off, then prices to pick up.

    It’s like the employment market, first workweek goes up, then temporary employees are hired, then permanent employees go up, then wages go up. Employment and wages are not leading indicators.

    Existing home sales and inventories are looking like they’ve already bottomed.
    http://www.crgraphs.com/2011/10/existing-home-sales.html

    There are lot of negatives overhanging the market, but directionally, they’re not getting worse, and one would think they might be discounted by now. Rates are low and anecdotally credit is loosening up, jobs and the economy are improving. If you have a stable income, there’s a strong case to borrow money at less than 3% after tax, with potential for inflation and tax rates and interest rates to go up in the future.

    True, there was never a big enough overshoot on the downside to pave the way for a major bull market, and it’s due to a tremendous amount of government backing, but there’s no reason to expect that to change (people are even pushing for forgiveness), and one would have said the same about the stock market circa 2009.

  15. ashpelham2 says:

    The biggest slap in the face about that whole chart, to me personally, was that I bought in late 2003, pre-boom, still hold the house today, post boom, and it’s worth 15% less than when I bought it. In 9 years, I have no equity. Never refi’d, never took out cash, neighborhood was supposedly in an area that doesn’t have “boom and bust cycles”. It’s simple to me: every single financial decision I have made since buying that house was another monstrous f— up.

  16. A7L-B says:

    The ‘Japanese model’, for over a decade, has accurately foreshadowed US market events with a helpful lag;
    it suggests RE prices will continue to drop for years to come, as will bond yields.

    Perhaps we can ‘do’ Japanese policies as well…

  17. Squashy says:

    Homes are not illiquid but they are much less liquid than stocks. I can buy or sell a stock with a few clicks of my mouse. I contacted a real estate agent to buy a condo in a well run association in a quality suburb of Washington DC, one of the strongest RE markets in the country, right before Thanksgiving 2011. I closed on 29 December (one month). The property had been in foreclosure on the market for 6 months. FNMA owned it. The selling agent was trying to sell it as quickly as possible (FNMA owns billions of dollars of this kind of inventory). I put down more than 50%. My credit and income history were impeccable. Even with all these advantages, the amount of paperwork needed to qualify, sign affidavits, buy insurance, inspect the property and negotiate the price was staggering. But I’d rather have this kind of market than the one in 2006 when people were outbidding each other on crappy properties every 30 minutes.

  18. philipat says:

    On top of the existing inventory glut, after the Robosigning “Settlement” expect another accelerated round of Foreclosures by the Banksters. On top of that, according to Credit Suisse data, there is another Mini-Peak in ARM resets in July/August, which will likely result in more foreclosures entering the pipeline.

    Looks great for a recovery?

  19. rd says:

    Definition of ‘Illiquid’
    The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators to purchase the asset. The lack of ready buyers also leads to larger discrepancies between the asking price (from the seller) and the bidding price (from a buyer) than would be found in an orderly market with daily trading activity.

    Investopedia explains ‘Illiquid’
    Some examples of inherently illiquid assets include houses, cars, antiques, private company interests and some types of debt instruments. On the other end of the spectrum, most listed securities traded at major exchanges, such as stocks, funds, bonds and commodities are very liquid, and can be sold instantaneously during regular market hours at fair market price.

    Illiquid securities carry higher risks than liquid ones; this becomes especially true during times of market turmoil when the ratio of buyers to sellers may be thrown out of balance. During these times, holders of illiquid securities may find themselves unable to unload them at all, or unable to do so without losing a lot of money.

    Read more: http://www.investopedia.com/terms/i/illiquid.asp#ixzz1t73WxThB

  20. Real estate is so local I find this all a bit meaningless, in my neighborhood prices have been quite sticky and bottomed over a year ago. Drive ten minutes towards the periphery and its a different picture entirely, prices are on the slow slide and I expect they will continue till things shake out. I also noticed just today that for sale signs have been popping up on busier streets in nicer neighborhoods right along with the dandelions, so I would gather that those folks have been waiting for this firming up to move. When rates rise its anyones guess if the fence sitter will buy before the window closes or wait to see if prices fall, rates and prices were far higher in the boom and that didn’t cause buyers to shy away did it?

  21. mathman says:

    Who is going to buy all this housing?
    – the old folks are losing money on their homes moving out to retirement homes (they aren’t worth what they were a while back, but more than they bought them for – however, factor in repair costs to put them on the market or write downs on the price in order to sell and it’s iffy whether they make big money on selling now);
    - the middle of the pack is largely staying put or even moving DOWN to more affordable digs, possibly even renting, due to stagnant wages;
    - and the young are without jobs, low pay in the jobs they have, but in either case few have the down payment necessary to go through the (corrupted) banks.

    i don’t see it.

  22. Realtors Are Liars says:

    Here is what we know;

    - Housing Prices Are Cratering, irrespective of location

    -Housing Inventory is Massive and growing

    -Housing Demand is at 15 Year Lows and falling

    Now what do you think the future holds?

  23. wally says:

    “Who is going to buy all this housing?”

    Immigrants who show up when the economy picks up further. Young families. Construction workers who go back to work as construction picks up. Move-up buyers.
    The world is not different this time. Depressions led by credit collapse and slowdowns in construction have distinct characteristics and are different from other types of depressions; the patterns are there on the record and we are following them.

  24. Lee Adler says:

    The Case Shiller data isn’t 2 months old. It’s 5 1/2 months old.

    Yes, it is a fact that the housing market is at historically extremely depressed levels. It is also a fact that it has come off the lows, the direction has been irregularly up since last year, however haltingly, and it is no longer a drag on the economy, it is accretive.

    Perhaps those who haven’t spend 30 years working in the real estate and real estate finance business in all kinds of markets in different places, who haven’t had the experience of buying at the bottom and selling at the top, analyzing the housing market professionally for 25 years, calling the timing of a top 2 years in advance and remaining steadfastly bearish until last year; yes those people may not understand it yet. But eventually they will when the data for today comes out in in the Case Shiller Index in October. Housing Data: Shiller Unaware Bernankinflation Winning

  25. Lee Adler says:

    The Case Shiller data isn’t 2 months old. It’s 5 1/2 months old.

    http://wallstreetexaminer.com/category/economic-and-financial/housing-economic-and-financial/

    I did a nice rant, but it disappeared.