S&P/Case-Shiller: January 2008

Today’s release of the S&P/Case-Shiller home price indices for January continues to reflect the tremendous weakness seen in the nation’s housing markets with now 19 of the 20 metro areas tracked reporting year-over-year declines and ALL metro areas showing substantial declines from their respective peaks.

Furthermore, the decline to the 10 city composite index declined a record 11.41% as compared to January 2007 far surpassing the all prior year-over-year decline records firmly placing the current decline in uncharted territory in terms of relative intensity.

This report appears to indicate that we have now firmly entered the serious price “free-fall” phase (look at the charts below) of the housing decline.

Topping the list of peak decliners was Detroit at -21.16%, San Diego at -21.13%, Phoenix at -20.82%, Las Vegas at -20.76%, Miami at -19.75%, Tampa at -18.25%, Los Angeles at -18.08%, San Francisco at -15.83%, Washington at -15.23%, Cleveland at -12.15%, Minneapolis at -11.66%, Boston at -10.89% and Denver at -8.05%.

Additionally, both of the broad composite indices showed accelerating declines slumping -13.36% for the 10 city national index and 12.53% for the 20 city national index on a peak comparison basis.

Also, it’s important to note that Boston, having been cited as a possible example of price declines abating, has continued its decline dropping -3.39% on a year-over-year basis and a solid -10.89% from the peak set back in September 2005.

As I had noted in prior posts, Boston has a strong degree of seasonality to its price movements and with both the seasonal drop in sales and the recent stunning new decline to sales as a result of both the looming recession working to erode confidence and the continued lack of affordable Jumbo and Alt-A loans, Boston may continue to decline even through the traditionally string spring selling season.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator and be sure to read the Tutorial in order to best understand how best to utilize the tool.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only eighteen months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

The Almost Daily 2¢ - Desperate Times Call For Desperate Measures

At first glance, the recent article concerning the “inside story” on the various home price indices penned by the National Association of Realtors (NAR) Chief Economist Lawrence Yun had me a steaming, especially with respect to its spurious attacks against Professor Robert Shiller.

But after reading a bit closer, I began to get a sense of both the truly desperate and unhealthy circumstances these used-house salesman have created for themselves (and America) as well as the lengths they will go to as they devolve further and further into madness.

I suppose that you could almost feel bad for this dwindling outfit of dimwitted losers had it not been for the obvious absurdity of the bed they made over the last decade and the faux riches it brought them.

It’s all come crashing down now and given that their former “rockstar” cheerleading economist shill David Lereah has left the building, economist Yun, a much more obvious and less enticing shill, is left holding the bag.

But a bag is still a bag and, however foolish, the tricks Yun’s is filled with are still meant to deceive.

First, let’s get one thing straight… Realtors deal in median home prices.

The method of determining the median home price, simply ordering the collection of current home sale prices and then selecting the price directly from the middle, is neither ideal nor democratic (as the ridiculous idiot Yun proudly declares) nor anti-democratic for that matter.

Determining the median price, like economist Yun himself, is one thing and one thing only… simple.
In fact, it’s so simple that it’s a poor indicator most of the time… perhaps that’s even why NAR relies on it so heavily.

Next, although both the OFHEO and S&P/Case-Shiller home price indices are far superior and more accurate at gauging actual home price changes than the brain-dead Realtor median price method, the OFHEO indices are formulated exclusively from data gathered from the GSEs (Fannie and Freddie) transactions thus they exclude any home sale transactions with financing in excess of the GSE conforming loan limit (currently $417,000) as well as being tainted further by the inclusion of re-finance data.

Don’t get me wrong… I think the OFHEO data is plenty accurate (I host both the complete OFHEO data and S&P/Case-Shiller… click for interactive charting) but as we are all keenly aware, non-agency transactions had a lot to do with the tumult we are seeing in the housing markets today, and the S&P/Case-Shiller indices, formulated directly from deed transactions, captures that.

On Yun’s issue of the distribution of S&P/Case-Shiller indices… so what if three cover metros in California and two cover metros in Florida, the other fifteen cover areas like Denver, Boston, Washington DC, New York, Seattle, Atlanta, Chicago, Detroit, Minneapolis, Charlotte NC, Portland OR, Dallas, Las Vegas, Cleveland and Phoenix.

Next, on the topic of context…. I CANNOT IMAGINE a more ridiculous notion than a NAR economist complaining about things being put out of context….

NAR is the CHAMPION of out of context analysis with shill “professionals” like Yun making false claims and insanely optimistic predictions only to be proven wrong so many times that it’s impossible to keep track.

If you had followed Yun’s own advice to “buy now” last year as prices were “beginning to stabilize” you would have been more than poorly served… you would have lost your shirt on likely the largest leveraged transaction of your life and would Lawrence Yun care? NO... HE THE NAR WANT YOUR MONEY!

More precisely… for his job of sitting around determining the best method of fooling you, the hapless American homebuyer, into buying (or selling) a home, Yun is paid a salary which is directly derived from Realtor dues that are, in turn, directly derived from the commissions from the home sales.

Next, Yun attempts to level a series of egregious blows against Professor Robert Shiller that amount to simply another attempt to smear the name of a public figure that actually has some REAL credibility.

Although it is true that Shiller’s research firm, MacroMarkets gets paid for the use of the Case-Shiller indices during futures contract transactions at the Chicago Mercantile Exchange (CME), Yun’s suggestion that this represents an conflict that gives Shiller an interest in the housing market decline only demonstrates how truly underhanded, ugly and ignorant Yun is.

Traders at the CME can choose to take either the long or short end of the trade through futures contracts as well as call and put options… ALL transactions presumably result in royalties to MacrMarkets not merely the short transactions.

If Shiller is guilty of something, it’s championing the optimistic notion of housing futures trading eventually bringing more stability to the housing markets by the creation of what is essentially “home equity insurance” derived from futures activity.

His concept may be far off, but if the trading activity gets liquid enough, third parties may step in and offer products derived from futures trading that we may all benefit from.

Finally, Ill remind readers that Professor Shiller is by far the least emphatic of recent “bearish” economists … I hesitate to even call him a “bearish” economist as he is only popularly known that way and is likely more accurately described simply as a skeptic.

Watch any of the Shiller clips I host at BNN and you will see that he is academic, reserved, and not the least bit aggressive with his position or outlook always leaving the door open for unforeseen market changes.

Recall that Shiller was the first to notice and report to the media that the Boston housing market showed a little extra price strength last year before it inevitably fizzled under the weight of the credit turmoil.

Also, of today’s most prominent economists, I think it would be fair to suggest that Shiller has been the most vocal at calling on the government to use intervention to stem the decline in the housing markets, urging significant rate cuts and challenging the federal government to get more creative with its approach.

So why is it that the NAR and Lawrence Yun attack Robert Shiller so?

Aside from being complete imbeciles, they are evil and desperately NEED to create a sense of doubt in the minds of anyone who might have noticed the accuracy of Shiller’s outlook and housing price indices.

They hope by doing this they can create a false dialog in the media that may soon lead to a dismissal of Shiller’s work and credibility.

Unfortunately for them (and the many home buyers they duped) though, after two years of substantial weakness, we have just entered the price “free-fall” phase of the housing decline with radical downward price movement being plainly visible no matter what measure you use.

The NAR will very soon be completely powerless in any attempt to control the outlook for home prices and the housing market... and not a moment too soon!

BNN MUST SEE TV! – Pizza Inflates, Roubini Squared, Shiller Unwinds, Spectacular Davidowitz, Gloomy Wien, and Yun Spins Again!

Here is a series of great and revealing video segments from the last couple of weeks that may not lift your spirits, but should provide some relevant outlook for the consumer and the looming (or current) recession.

First, here is a somewhat startling segment with the David Brandon, CEO of Domino’s Pizza in which he states that the consumer is clearly pulling back and that “unprecedented” food inflation poses the biggest issue for their operations.

Brandon states that the cost of just about every component of their product is at a 10 year high and that it has been hard to raise prices as fast as the underlying commodities have increased.

Needless to say, if the U.S. consumer is pulling back on pizza … draw your own conclusion.

Watch the Brandon’s Wakeup Call on BNN!

Next, Professor Nouriel Roubini and Brian Wesbury join Larry Kudlow to debate the fate of the supposed “Goldilocks” economy.

Roubini accurately points out that “real” consumption has been weak, residential investment has been collapsing and the current liquidity crisis presents the worst financial crisis in 20 years.

Wesbury amazingly puts aside housing rattles off a bunch of anecdotes about getting parking and a seat at a restaurant and then suggests that there is “no evidence that this economy is slowing down”.

Watch Roubini Spar A Foolish Wesbury on BNN!

Next, Again Professor Nouriel Roubini and Charles Lieberman of Advisors Capital Management face off on the fate of the economy and the ramifications of the mortgage-credit debacle and rising energy costs.

Roubini continues to provide his consistently accurate point of view that inevitably sees the economy coming in for a “hard landing” recession while Lieberman suggests that the impact from higher energy costs is “negligible”, the negative savings rate is merely a statistical phenomena, and the adverse effects of the mortgage-credit debacle are “much much smaller” than Roubini realizes… my money is on Roubini.

Watch Roubini Spar a Delusional Charles Lieberman on BNN!

Next, Professor Robert Shiller joins Bloomberg to discuss the most recent results of the S&P/Case-Shiller home price indices.

Shiller suggests that the boom is clearly unraveling with broad based price declines and the seizing up of the credit markets and suggest that it is “it’s not implausible that prices wont bottom out for another five years”.

Watch Shiller Watch The Unwinding on BNN!

Next up, a SPECTACULAR segment… Howard Davidowitz of Davidowitz & Associates joins Bloomberg to discuss the outlook for the retailers and the economy in general.

This segment is a MUST SEE… Davidowitz does the best job I have seen to date of putting the retail and consumer pictures into context.

Watch Davidowitz Talk Reality on BNN!

Next, Byron Wien, Chief Investment Strategist with Pequot Capital joins Bloomberg to discuss his sobering outlook on the economy for 2008.

It seems the consensus tide is now firmly turning in, like it or not, in favor of some significantly slower times ahead.

Wien believes that the housing collapse has been underestimated and its drag on the economy will remain substantial.

Watch A Truly Gloomy Outlook on BNN!

Finally, Lawrence Yun, chief economist with the National Association of Realtors joins Bloomberg to spin a tale of housing market stabilization.

Yun partially sidesteps the question on the potential for price declines for 2008 stating that he sees no declines nationally and even price increases in regions in the middle of the country.

Watch Yun Spin Spin Spin!!! On BNN!

S&P/Case-Shiller: October 2007

Yesterday’s release of the S&P/Case-Shiller home price indices for October continues to reflect significant weakness for the nation’s housing markets with 17 of the 20 metro areas tracked reporting year-over-year declines and now ALL metro areas showing declines from their respective peaks.

Furthermore, the decline to the 10 city composite index declined a record 6.7% as compared to October 2006 surpassing the prior year-over-year decline record of 6.3% set back in April of 1991 (see charts below for best view) firmly placing the current decline in uncharted territory in terms of relative intensity.

This report appears to indicate, at least initially, that during the fall we essentially entered a price “free-fall” phase of the housing decline.

Topping the list of peak decliners are Detroit at -14.88%, Tampa at -13.32%, San Diego at -13.31%, Miami at -13.00%, Phoenix at -11.74%, Las Vegas at -11.12%, Washington at -9.70%, Los Angeles at -8.92%, San Francisco at -7.48%, Boston at -7.19%.

Additionally, both of the broad composite indices showed accelerating declines slumping -7.34% for the 10 city composite index and -6.60% for the 20 city composite index on a peak comparison basis.

Also, it’s important to note that Boston, having been cited as a possible example of price declines abating, has continued its decline dropping -3.63% on a year-over-year basis and a solid -7.19% from the peak set back in September 2005.

As I had noted in prior posts, Boston has a strong degree of seasonality to its price movements and with both the seasonal drop in sales and the recent stunning new decline to sales as a result of the disappearance of Jumbo and Alt-A loans, Boston will likely continue on yet another significant leg down in prices.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator and be sure to read the Tutorial in order to best understand how best to utilize the tool.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to October 2006.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only sixteen months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

S&P/Case-Shiller: September 2007

Today’s release of the S&P/Case-Shiller home price indices for September continues to reflect significant weakness for the nation’s housing markets with 13 of the 20 metro areas tracked reporting year-over-year declines and now ALL metro areas showing declines from their respective peaks.

Topping the list of peak decliners are Detroit at -12.77%, Tampa at -11.74%, Miami at -11.13%, San Diego at -10.99%, Phoenix at -9.74%, Las Vegas at -9.08% and Washington DC at -8.92%.

Additionally, both of the broad composite indices showed accelerating declines slumping -6.03% for the 10 city national index and -5.28% for the 20 city national index on a peak comparison basis.

Also, it’s important to note that Boston, having been cited as a possible example of price declines abating, has continued its decline dropping -3.18% on a year-over-year basis and a solid -6.42% from the peak set back in September 2005.

As I had noted in prior posts, Boston has a strong degree of seasonality to its price movements and with both the seasonal drop in sales and the recent stunning new decline to sales as a result of the disappearance of Jumbo and Alt-A loans, Boston will likely continue on yet another significant leg down in prices.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool as well as the PaperEconomy Home Value Calculator and be sure to read the Tutorial in order to best understand how best to utilize the tool.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices for September 2007 as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices for September 2007 as compared to September 2006.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights how young the current housing decline is, having only posted nine consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only fifteen months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

Calculate Your (Paper) Housing Wealth!

In an effort to make the most out of the S&P/Case-Shiller indices and the implications of the futures contracts that trade in concert with them, I have created the Home Value Calculator Tool which calculates your home’s value history based on a few simple pieces of criteria.

Plug in your purchase date, the price you paid and the market that your home is located in and…

POOF!

Out comes the complete history of your home’s value and, for some markets, predictions for its value in the future.

Of course, you should view this data as a rough estimate although, for my last home, the results are spot on.

The tool uses the CSI and daily settled futures data in order to formulate your home’s value history and additionally provides results in both “nominal” (i.e. non-inflation adjusted) and inflation adjusted terms.

For more information on the technicals of the underlying home prices indices, read my prior posts on the subject and check out the S&P/Case-Shiller/Futures Tool.

As usual, let me know what you think and of course, if you should notice any bugs!

S&P/Case-Shiller/Futures Tool Version 2.0!

Today, I updated the S&P/Case-Shiller/Futures Tool to fix a few annoying bugs and to add functionality that allows for some new and really exciting data visualizations.

For those who are unaware of the tools purpose, please read the tutorial for a detailed explanation but in short, the tool simply allows a user to chart any of the 22 S&P/Case-Shiller home price indices, adjusting elements like the date range and year-over-year changes, as well as simultaneously fusing the latest daily settled futures contract prices for the markets where futures are traded.

The Chicago Mercantile Exchange (CME) supports the trading of futures based on the S&P/Case-Shiller home indices so by fusing the latest results of a given home price index to the latest daily settled contract price for the various contracts available, the tool allows you to essentially see into the future for home prices with, at the very least, the accuracy of a whole marketplace of futures traders.

In an unexpected move, Standard & Poor’s recently released (mega hattip to BostonBubble) a boat load of new data for 17 of the 20 markets they track, now essentially breaking out each metro region into three separate price tiers and even expanding the historical data back as far as 1972 for some regions.

This is a very interesting development as you can clearly see distinct differences between the courses that each tier traversed in the past and the current direction they are taking now.

It’s important to understand how the tiers work in order to make best use of the tool.

The price range in each market’s low, middle and high tier is calculated independently so each market has a different ranges but you can simply visualize the ranges as lower, middle and higher priced single family homes relative to the market you are looking at.

Forgive me, but for now I don’t show the price range values for each tier in the tool (I will implement that in a later update) as I simply didn’t have enough time to parse out that data, store and incorporate it into the view.

The tiers themselves are broken out based on the latest results (i.e. homes that have recently sold in each price range) and then the data is essentially compiled backwards.

It’s important to understand that the S&P/Case-Shiller data is formulated from actual "repeat" existing home sale values that are recorded with actual deed transactions up to the window of time covered by the latest release.

To see the tiers, scroll down to the “Price Ranges” section and “check” the tier you are interested in and remember that “All” tier represents the original “vanilla” aggregate series.

Then click the “Update Chart” button and you will see the tier indices you selected plotted against one of the tiers year-over-year (YOY) columns.

The current charting component I’m using unfortunately does not do such a good job at plotting columns from multiple series so for now you can only show one YOY plot.

Notice that next to each price tier is a “radio button” that allows you to select the tier that you would like to see plotted out on a YOY basis.

Another thing to keep in mind is that the Futures contracts only correlate with the original “vanilla” aggregate series so if you choose a price tier other than “All”, the futures data will NOT plot.

This version of the tool is pretty solid but I have some great ideas for how this data can be better used and soon I will host additional tools to help in analyzing home prices so check back and remember that the Futures data is refreshed every day.

Let me know what you think and of course, if you should notice any bugs!

S&P/Case-Shiller: August 2007

Today’s release of the S&P/Case-Shiller home price indices for August continued to show significant weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting year-over-year declines and now virtually ALL (except Charlotte NC which changed 0.0%) metro areas showing declines from their respective peaks.

Topping the list of peak decliners are Detroit at -12.18%, Tampa at -10.57%, San Diego at -9.43%, Miami as -9.11%, Washington DC at -8.38%, Phoenix at -8.16% and Las Vegas at -7.65%.

Additionally, both of the broad composite indices showed accelerating declines slumping -5.28% for the 10 city national index and -4.53% for the 20 city national index on a peak comparison basis.

Also, it’s important to note that Boston, having been cited as a possible example of price declines abating, has now again resumed its decline dropping -3.62% on a year-over-year basis and a solid -6.32% from the peak set back in September 2005.

As I had noted in prior posts, Boston has a strong degree of seasonality to its price movements and with both the seasonal drop in sales and the recent stunning new decline to sales as a result of the disappearance of Jumbo and Alt-A loans, Boston will likely continue on yet another significant leg down in prices.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool and be sure to read the Tutorial in order to best understand how best to utilize the tool.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights how young the current housing decline is, having only posted four consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only ten months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.

Goin’ Down Slow: Survey of Consumers October 2007

The latest and historical results of the Reuters/University of Michigan Survey of Consumers provides a wealth of information for anyone looking to better understand how consumer sentiment has effected or has been effected by the housing bust.

Let’s face it, something significant must have changed in the minds of consumers between the spring and fall of 2005 that led the unwinding we see today.

With the historically low interest rates, solid employment, the loose lending situation and all the news and media coverage of the “flipping” mania, the times couldn’t have been better for home buying if ease of qualification and expectations of near term appreciation were to be the deciding factors.

But yet, something major did change and well in advance of the actual economic pullback or turmoil we are seeing now.

As I believe we will see more clearly in years to come, the housing boom was simply a classic, though enormous, asset bubble fueled primarily by the unprecedented availability of cheap money combined with the totally human response of popular delusion.

The following charts (click for huge versions) show the result of the Survey of Consumers and some components that are specifically related to housing.

The first chart shows the Consumer Sentiment Index, Index of Consumer Expectations, and the Current Economic Conditions Index from 2000 to the present.

The next five charts shows key housing related components of the Consumer Sentiment Index divided between “Good Time to Buy a Home” and “Bad Time to Buy a Home” plotted against the S&P/Case-Shiller Composite Index (CSI) from 1987 to March 2007, the latest historical data available.

I will provide some more thorough analysis in a later post but for now a cursory look at the housing related charts seems to reveal some fairly interesting insight into how consumers interpreted basic aspects of the housing situation throughout the run-up and now the decline.

Correlating the Correlation

For several months now I have been producing a regular post entitled “Conspicuous Correlation” that demonstrated an apparent relationship between the decline in home prices and a near simultaneous pullback in the retail sales of the most discretionary items.

While that post generally “eyeballed” what seemed to be a fairly obvious relationship, I’d like to expand the analysis (hattip Deejayoh for proposing the concepts found below) a bit in order to present a more complete representation of the correlation as well as setting the stage for future “Conspicuous Correlation” posts.

First, in order to get a sense of the original presumed correlation, take a look at the chart below (click for larger version) showing the year-over-year percentage change to both the S&P/Case-Shiller Composite Index (measuring home price change) versus my “discretionary” retail sales index (measuring retail sales change).

Note that the chart shows that during the period from January 2001 to June 2003 retail sales faltered a little as the effects of the dot-com recession worked to dampen spending but that housing remained at exceptional rates of appreciation.

Notice also that from July 2003 to January 2006 both measures show exceptional, and possibly related or correlated growth that then seemed to also decline in tandem in early 2006 with the retail sales component having generally remained either negative or dampened similar to the rates seen during the last recession.

So this frames the heart of the matter.

Did the exceptional growth of housing values spill over to the consumption of discretionary items and then as the housing tide turned did it spill over again but in reverse?

Anecdotally, I think, we would probably all be pretty comfortable with assuming this correlation exists as we have all likely witnessed some aspect of the cash out refinancing and other related activities resulting from the housing boom but let’s see if a more complete statistical correlation exists to hang our hat on.

Next, let’s expand the chart a bit (click for much larger version) to include the full range of available data starting in January 1993 and running all the way through the latest month where both series have data points in July 2007.

Notice that in general, the rate of change of the two series do not appear to be very well correlated and, in fact, that during the tail end of the last housing recession in 1993, retail sales was growing strongly while home appreciation floundered along the bottom until 1997.

Also note that while growth (or lack thereof) of retail sales was clearly dampened during the dot-com recession, home price appreciation seems to have been little effected.

The next chart (click for larger version) shows the full range of series data (Not year-over-year change… simply the underlying data) for both the “discretionary” retails sales and the S&P/Case-Shiller Composite index starting from 1993, as well as introducing a Pearson’s correlation that calculates the degree of correlation between the two data series.

Note that in this chart, the correlation set for each successive month cumulative staring from January 1993 so although the correlation starts out nonexistent initially, the two measures begin to correlate strongly for the remainder of the dataset.

It’s important to note that I included this chart mostly as an exercise to set up the next several charts and I don’t think that this correlation shows anything of any great importance other than that, over a long period of time, both home prices and retail spending increased.

There is nothing in the chart to suggest that the home price appreciation influenced the increase to retail spending, only that they both increased over the same period.

The next chart (click for larger version) betters the prior by using a 12 month “moving” correlation whereby each successive correlation data point indicates the degree of correlation between the last 12 months of series data.

This chart clearly shows periods of variation where the two series range from closely correlated to no correlated at all.

One feature to note is that the correlation was strong during the mid to late nineties prior to the dot-com recession where both home prices and retail sales grew consistently.

Then during the dot-com recession the correlation fell apart as retail sales were clearly flattened by the downturn and home prices seemed largely unaffected.

Also note that as of late, the correlation has fallen apart again as home prices have declined and retails sales, although having flattened, have not declined.

The final chart (click for larger version) takes a different angle, instead attempting to correlate the year-over-year rates of change of the underlying data series rather than the series themselves.

As you can see there is little consistent correlation between the rates of change of these series but that having been said, the best correlation to date has been in the trend seen since 2006.

Although the correlation has weakened a little as home prices continue to slide and retail sales have at worst flattened, this current existing correlation would be interesting to watch over the coming months.

If a measurable pullback continues to occur in discretionary retail sales, this correlation will persist, leaving us to possibly conclude that there is a direct effect between the latest decline in home values and consumption of discretionary items.

Ill update the “Conspicuous Correlation” post to reflect this better assessment of the correlation so be sure to check back as the new retail sales numbers are being released on Friday and they will definitely make an impact one way or the other.

S&P/Case-Shiller: July 2007

The most recent release of the S&P/Case-Shiller home price indices for July continued to show weakness for the nation’s housing markets with 15 of the 20 metro areas tracked reporting significant declines.

Topping the list of decliners on a year-over-year basis was Detroit at -9.69%, Tampa at -8.77%, San Diego at -7.78%, Phoenix at -7.30, Washington DC at -7.22%, Miami at -6.14% and Las Vegas at -6.14.

Additionally, both of the broad composite indices showed accelerating declines slumping -4.52% for the 10 city national index and -3.91% for the 20 city national index continuing the first negative slump in annualized appreciation seen since the early 90’s housing bust.

To better visualize the results use the PaperEconomy S&P/Case-Shiller/Futures Charting Tool and be sure to read the Tutorial in order to best understand how best to utilize the tool.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights how young the current housing decline is, having only posted four consecutive year-over-year (YOY) monthly declines to home prices.

Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only ten months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle (click the following chart for larger version).

The “peak” chart compares the percentage change, comparing monthly CSI 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 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

Notice that peak declines have been FAR 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.