Karl Case (of Case-Shiller) On The Latest Housing Numbers

A while back we published a quote from someone highly critical of the Case-Shiller Housing Index, who said that “using the Case-Shiller to get a feel for the housing market is like using the average temperatures over the past three months to decide how to dress today.”

Now that is a little harsh.

The Case-Shiller Home Price Index was created in 1991 by Wellesley Professor Emeritus and Harvard Fellow Karl Case and Yale economics professor Robert Shiller. It is called by S&P “the leading measure for the US residential housing market, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions.”

The report issued today was disappointing, with property values in 20 cities dropping -3.6% year over year, against estimates for a decrease of -2.8% to -3.0% predicted by most economists. For the year ended in August, the decline was -3.8%. PIMCO has forecast that values could decline an additional 6-8% before “the bottom”. By some estimates, overall housing values are off about 30% since the mid-2006 peak and something on the order of $7 trillion has been lost in residential values across the country.

Karl Case was on Bloomberg’s radio show Surveillance this morning discussing the latest results and had some interesting observations:

• the seeds for a housing recovery have been planted but the lack of a stronger rebound in prices to date is very disappointing, given that some other elements of the economy are showing signs of a somewhat sustainable recovery…the FED’s easing policy “should have done more to help the market.”
  
• potential home buyers are being kept on the sidelines by policy makers tightening rules for government-backed loans and banks being more restrictive than required by Fannie Mae, Freddie Mac and the Federal Housing Administration…85% of approved mortgages are government-guaranteed
  
• one of the big issues is lack of new household formations, which should be over 1 million per year but is closer to a flatline…unemployment and the phenomenon of stay at home young people is not helping, nor is a slower rate of immigration
  
• new housing starts are at “disastrous” levels and just help form a vicious circle keeping unemployment high in the housing industry
  
• Case feels the banking industry has to relieve the “credit crunch” for what would normally be viewed as qualified buyers, and perhaps charging slightly higher mortgage rates could offset what is being viewed as a “higher risk profile”

We can’t help but find it ironic that the consistently strongest housing market is in the Washington, D.C. area, which actually improved +1.2% in this latest release.

Good Trading!
David W. (aka The Underground Trader)

 

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