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Tuesday, May 27, 2008


sticky prices no more

s&p/case shiller are out with their 1q2008 figures. via calculated risk:

The index fell to 159.18 in Q1 2008, from 170.62 in Q4. A decline of 6.7%, or almost 30% at an annual rate.

This is the lowest level for the index since Q3 2004.

Prices fell 14.1% over the last four quarters according to Case-Shiller.

The index is off 16.2% from the peak.

these are stunning numbers even for the desensitized. declines are quickening even as annual cyclical pressure should be boosting buying pressure.

in the shorter term, the 3-month annualized data (pink line) show that prices tend to rise seasonally, exhibiting their most positive behavior between march and may. but, following may into november, one starts to see seasonal discounting take over through the autumn, usually often bottoming in december.

so what happenes when that cyclical pressure turns against prices? or, with other factors so dominating house price movements, will it even be noticed? i tend to think it will -- turning bad into worse.

with the potential and indeed probability pointing toward even steeper declines in the coming quarters, this slump has undeniably become the exemplar of depression housing and is challenging long-held assumptions about the market for homes as a commenter at calculated risk noted:

Looks like we may have to revisit the idea of house prices being sticky in certain environments.

My sense is that the huge glut combined with mass foreclosures is pushing down prices quite rapidly.

So the situation may be fundamentally different from past downturns or situations like the Japanese downturn where lack of buildable space (I'm assuming) and high savings helped drag out the downturn.

and another:

In the face of data like this coming out of leader areas like San Diego I've been predicting that house prices will NOT be sticky since late last year. We're going to see a crash, with no historical precedent even in the Great Depression, with house prices reaching rent equivalence within a year. The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).

stunningly, optimistic spin is still to be seen. yet another incredible report on new home sales -- one so bad that few would have believed it possible just a couple years ago -- is met with a headline like "Home sales post unexpected April increase". the irrational optimism of bubbles dies hard in busts, and following the largest and wildest bubbles it only dies once the horsemen of an unanticipated apocalypse have laid waste to the scene repeatedly such that no brick stands atop another. apparently we are not there yet, though at least new home inventory is finally downtrending -- a necessary condition for anything like a floor to be put in on prices eventually.

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