1) rates drop by 30% YoY allowing the 70% of buyers who use a mortgage to ‘pay’ 15% more for a house on the same monthly payment;

2)  foreclosures as a percentage of total sales drop 25% YoY lifting the “median” sale price:

3)  and you comp YoY against a stimulus hangover year;

’prices paid’ will ‘rise’ and ‘comps’ will look great.   But the benefits of stimulus and easy comps will soon turn into headwinds and difficult comps, which is exactly what happened in 2011 following the year+ long home buyer tax credit stimulus pump of 2009/10.  Once again, people are mistaking stimulus for durable fundamentals, which has been a consistent problem since housing’s first dead cat bounce on QE in 2009.

This morning Case-Shiller revealed one of the most known known’s in housing;  that from 7 to 5 months ago (from Feb to April 2012) the price at which people ‘contracted’ to ‘pay’ for houses increased at the median YoY by ~1% from the severe hangover period from Feb to April 2011 when rates were 150-bps higher and foreclosures as a percentage of total sales 33% greater.  Feb through April escrows with 30 to 60 closing periods would have closed from April through June and are now being reported at the end of August as something meaningful. It’s incredible really.

This is the first YoY ‘increase’ since the tax credit period of 2010 (not coincidentally) when purchasing power was also ratcheted higher on stimulus leverage due to 38 states allowing the monetization of the tax credit for down payment purposes through FHA.

If you remember, during this stimulus period leading up to the July 2010 sunset, headlines were filled with headlines such as “multiple offers return”; “house prices on the rise”; ”housing’s ‘v’ bottom” etc for months and months.  With respect to today’s CS, the stimulus-goosed 1h’10 is this years best comp, as last year needs to be discounted as a stimulus hangover period.

In sum, today’s CS is disappointing…a YoY 15% increase in purchasing power and 25% decrease in foreclosure resales and still the CS-20 NSA only managed a 0.5% gain over last year.  To me, normalized, that means real house prices are still falling.

The chart below is the not-seasonally adjusted Case-Shiller 10 vs 20 indices.  Anybody that can clearly see in these data a “durable bottom”, “escape velocity”, or a “recovery” is a lot better analyst than I.

Source: Mark Hanson




Mark Hanson is a mortgage banking veteran specializing in wholesale and correspondent sales, operations management. His primary focus was upon residential mortgages working closely with most mortgage and Wall Street investors. Since 2006 his primary focus has been upon his work as an independent real estate and finance sector analyst, consultant, and risk enlightener to the financial services sector.

Category: Real Estate

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.

20 Responses to “Hanson On Case Shiller”

  1. VennData says:

    “…This was better than the consensus forecast and the change to a year-over-year increase is significant…”


  2. cfischer says:

    I’ve always wondering why meager gains in home prices have been viewed as a positive in light of the big fall in interest rates. If we went back to 5% 30-year mortgages, I’d expect to see home prices fall another 10%.

  3. MacroEconomist says:

    Dude, who cares about “real” home prices. Real prices fell in the early 90′s, but nominal prices went up, all within the midst of owning being cheaper than renting.

    There is a serious shortage of good housing. Go actually bid for a house and you will see.

  4. rjs0 says:

    the same analysts who panned the homebuyer tax credits as temporary market distortions are ignoring the temporary distortion in home prices caused by Fed-induced record low interest rates, which effectively reduces the amount a buyer pays for a home even as the list price rises…in large part due to the Fed’s “operation twist”, the average interest rate on fixed rate 30 year mortgages in July was 3.55%, a full percentage point lower than Freddie Mac’s had the 30 year mortgage rate at a year ago…a simple mortgage calculation shows that the monthly cost per $100,000 on a 30 year mortgage in july of 2012 was $451.84, compared to the $509.66 per $100K one would have paid monthly on a 30 year mortgage last July; that means to buy the same house a year ago would have cost a potential homeowner 12.8% more in payments monthly than it would cost under current interest rate regimes…so even should July’s home price indexes show a 2.8% year over year gain in the principal price of the house, it would still mean that potential home buyers are still only willing to commit 10% less to homeownership than they were a year ago…the so-called housing recovery is merely a fiction of manipulated interest rates, which will not stay this low forever…


    BR: Someone who was surprised at my lack of short term bullishness in Housing asked me what is the most bearish factor was long term. My answer was “Tell me what happens when Fed rates are no longer at zero and mortgage rates go up from 3.75% …”

  5. Futuredome says:

    “If we went back to 5% 30-year mortgages, I’d expect to see home prices fall another 10%.”

    I doubt it. If interest went back to 5%, the recovery has surged. Your not putting the pieces together right.


    BR: You are ignoring the artificial mortgage rate suppression this past decade.

    Forget 4 or 5%? What happens when mortgage rates are allowed to normalize — thats closer to 7%.

  6. Futuredome says:

    “There is a serious shortage of good housing. Go actually bid for a house and you will see.”

    Absolutely. The production side of the bust is over and building will resume in 2013 outside a government interference. I suspect real prices to continue to fall until the 2020′s generally.

    BR has the same problem that hurts alot of economic schools: fetishes with interest rates. Interest rates are prices paid, nothing more or less. During gold standard days, once of the reasons huge econ bubbles blew/busted was because interest rates would go down as the bubble blew up and then spiked when it burst. This was one reform when the FOMC was made, that did work for its time though it took the great depression to teach us to use it after the disaster of 31-32. Artifically raising interest rates to force down housing prices will not make them any cheaper. Incomes will drop as well. So Housing prices could drop another 20% and they would still be far to expensive. Then another 20%…….still to expensive as incomes drop. I suspect there would be bloodshed by that point though.

    US GDP surged between 1939-2007. I mean rocketed. A middle class was born. Yet, 5 years of no growth and people whine. Capitalism is not always gonna boom . We are in a down time working things out. Some structural changes need to be made in terms of supporting domestic production and bringing “back” demand. Keeping on top of global capital flows, which we did not do well in the 00′s leading toward the bust, must be a top priority rather than interest rates. Artifically trying to control capital flows with high interest rates will set the stage for rebellion. We need demand and capital controls…..period.

  7. BuildingCom says:

    And what happens when the 25 million excess empty houses hits the market…….

  8. NoKidding says:

    What happens to the fed, with about a third of its balance sheet made of MBS on fixed rate 4 percent 30- year debt. Ouch.

  9. ezrasfund says:

    As interest rates go ever lower mortgage payments represent a smaller and smaller portion of the true cost of owning a home. But the other costs keep going up; property taxes, insurance, and general upkeep. Just look at the maintenance charges on NYC condos (averaging in the neighborhood of $1.50/sq ft/month in Manhattan according to the NY Times). If you are not part of the 1% whose parents paid for college and can also pony up the down-payment, as a first time home buyer it will be hard to find the 20% down and to show you can make the payments along with your student loans . Already own a home? If your not already underwater realtors fees and transaction costs should gobble up a good part of your equity. That does leave some qualified buyers who aren’t concerned about future mobility or buying a depreciating asset. They want the American dream of owning your own home (and rightly so, no sarcasm intended), but these buyer will be expecting a bargain in most markets.

    Look to Japan to see what will happen in the US. Interest rates near zero for decades even with massive government debt, a housing market that stays more or less flat, and a population that becomes increasingly urban.

  10. socaljoe says:

    I doubt the federal government could afford to roll over it’s debt in an environment of 7% mortgage rates.

    Hence, it will likely not be allowed to happen.

    More likely, the FED will print to suppress long rates.

    If Japan is any example, we’re decades away from 7% mortgage rates.

    Not sure if the dollar will survive that long in its present form.

  11. foss says:

    With all due respect, BR, and you deserve a ton, the relationship between housing prices and interest/mortgage rates is murky at best



    to quote CR

    So the buyer needs to consider both current interest rates and future interest rates, and by the time they are done doing all the calculations, you get the graph that Leonhardt shows. And that is exactly what I’d expect – there is little relationship between house prices and mortgage rates. That doesn’t surprise me at all.

    Note: When I wrote about this in 2005, I used a car example. Would people pay more for a car if interests rates are low?

    Bottom line is that yes interest rates are suppressed, and no I don’t think that home prices are headed up up and away, but a return to slightly positive increasing nominal prices and flat real prices is pretty much baked in the cake. A sudden interest rate shock that is truly exogenous would cause massive decrease in nominal home prices, but unless you’ve joined the inflationista train, this just isn’t happening anytime soon – and I mean years…

  12. [...] still in a funk. I saw a TON of stuff for sale along choice parcels in northern Minnesota. Realtors up there tell [...]

  13. oblom says:

    MacroEconomist, right on. Supply is not all the same. Housing isn’t commodity.

    There is some serious group-think on the bearish side these days. All the “what happens?” popping-up.

    “What happens if mortgage rates go to 4-5%?” It’ll coincide with a faster economic growth, so who cares?
    “What happens when the government is out of the mortgage market and rates are at 7%?” By that time inflation will be unleashed and 7% mortgage will be equivalent to a 4% one.
    “What happens when shadow inventory flood hits?” If it exists it’ll be released at the rate that will match the supply. Banks, although evil, aren’t stupid.
    “What happens when mortgage deductions are removed?” Seriously? Home ownership rate will drop and we’ll crash. Don’t you think that the Congress realizes this?

    Here is another set of questions for you:

    What happens when rents start climbing up at a faster pace?
    What happens happens to your future monthly mortgage payment when mortgage rates go to 5% and the housing prices don’t fall?
    What happens if the Fed decides to be less careful about inflating away? Or when the money they pumped in so far makes its way into the economy (i.e. Fed discontinues reserve payments). Where are you going to put your mattress cash then?

  14. BuildingCom says:

    “What happens when rents start climbing up at a faster pace?”

    When rents stop falling and start rising, we’ll talk about it then.

    “What happens happens to your future monthly mortgage payment when mortgage rates go to 5% and the housing prices don’t fall?”

    Prices are falling irrespective of mortgage rates.

    “What happens if the Fed decides to be less careful about inflating away? Or when the money they pumped in so far makes its way into the economy (i.e. Fed discontinues reserve payments). Where are you going to put your mattress cash then?”

    The deflationary spiral continues. When it stops, we’ll talk about it then.

  15. oblom says:

    BuildingCom, you are a bit behind the data.

    Rents nationwide rents are up 5.4% year-over-year. Here is the link (http://www.zillow.com/local-info/), select “Zillow Rent Index” on the left, scroll down to the table.

    Mortgage rates and housing prices are very weakly correlated, and even then only when rates fall. Here is an article with a chart from one of the above posts (http://economix.blogs.nytimes.com/2010/09/07/mortgage-rates-and-home-prices/)

    Hate to break it to you, there hasn’t been deflation since 2009. Official rate is around 1.5%, Shadow Stats estimate is around 5%. (http://www.shadowstats.com/alternate_data/inflation-charts)

  16. BuildingCom says:


    Rental rates are falling. Don’t believe me? See for yourself.

    The largest year-over-year percent declines in rental prices were observed in

    Denver (-8.8%)
    Chicago (-4.8%)
    Los Angeles (-2.6%)


    Down we go….


  17. [...] on Barry Ritholtz’s The Big Picture blog, real estate and mortgage researcher Mark Hanson has a different view of what a 0.5% rise in Case-Shiller’s quarterly report on home prices [...]

  18. [...] bottom. Others are  more optimistic. To balance the exuberant conclusions you might be hearing, I offer this link. It argues that the recent positive housing data, such as this week’s Case-Shiller Home Price [...]

  19. mmp997 says:

    Hanson is right.

    The Case-Shiller figures do not adjust for inflation. When the figures are inflation-adjusted, as perhaps they should be, prices are still declining (at least, if you use the Case-Shiller figures). Please see: http://www.globalpropertyguide.com/investment-analysis/No-letup-in-global-housing-market-downturn-aggravating-European-crisis

  20. [...] that an article about a home price recovery can omit any mention of the Fed and Ben Bernanke. Mark Hanson has looked at this, and he notes that the Fed’s QE/Twist programs have driven mortgage rates [...]