ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Wednesday, July 29, 2009


psychology of the housing market

calculated risk has put forward a couple of interesting posts on the reportage surrounding the latest case-shiller house price index release.

his view on the fate of prices is much like mine own longstanding -- prices follow peaks in starts and inventory at several quarters of lag.


The reason I bring this up is the Case-Shiller report today really bothered me. To be more accurate, the reporting on the Case-Shiller report bothers me. As I mentioned earlier today, there is a strong seasonal component to house prices, and although the seasonally adjusted Case-Shiller index was down (Case-Shiller was reported as up by the media) - I don't think the seasonal factor accurately captures the recent swings in the NSA data.

I have no crystal ball - and maybe prices have bottomed - but this potentially means a negative surprise for the market later this year - perhaps when the October or November Case-Shiller data is released (October will be released near the end of December). If exuberance builds about house prices, and the market receives a negative surprise, be careful.

and more today:

These are influential writers.

Streitfeld has been writing about the housing bubble and collapse for years. The Atlantic named him "The Bard of the Bubble" in 2006.

Hong has only been covering housing for a couple of years, but he has also done a very good job.

Of course I think house prices will continue to decline in the Fall, and that the May report was distorted by seasonal factors.

please consider that, over the next several months, we are going to witness the closure of hundreds of banks as the collapse of american commercial real estate feeds through the financial system. these banks, especially in the aftermath of the collapse of mortgage securitization, are important originators to the residential mortgage market. over time, surviving american banks in an environment of inadequate fiscal stimulus have great potential to be funding constrained as deposits decline and current account deficits narrow, promoting asset liquidation. further given the massive trauma suffered by household balance sheets and incomes in this depression, with the historical pattern of housing busts cited above as context, housing is very likely to have a long tail of price decline under these circumstances.

and yet, there is actual optimism about a bottom in house prices in press reportage over this first seasonal uptick in three years.

bubble psychology dies hard -- i still remember sitting in the dentist's chair back in late 2001 fielding questions from him as he scraped my teeth about when lucent technologies would "come back". a return to "normal" is part of the human preconception of all stressful times. much harder for most people is to realize that the aberration is not in the crash but in the bubble which preceded it. and it would appear that remnants of bubble psychology is still hanging on, even at this late date.

UPDATE: calculated risk examines the insufficiency of the current seasonal adjustment in the case-shiller series given the volatility of house prices in recent years.

[L]ook at the last couple of years. The SA dashed line is very close to the NSA line, even with the wild NSA swings. This suggests to me that the seasonal adjustment is currently insufficient and I expect that the index will show steeper declines, especially starting in October and November.

Even with the wild NSA swings, most media reports used the NSA data and not the SA data (Streitfeld at the NY Times used both).

this is a similar observation to the one i made in examining the standardization factors for the LEI as related to the explosion in m2. how the data is being adjusted using historical series volatility as a baseline in this new environment of radical volatility is coloring the interpretation of data. it's important to try to see through these statistical effects to get a clearer picture of what's happening.

UPDATE: alphaville with the criticism of free exchange. i comment:

free exchange misses it, i think. CR is basically arguing that the volatility of house prices changes has increased materially beyond that which was witnessed in the historical series section which was used to derive the adjustment. it's not that the seasonal factor has intensified so much as the movement of prices has intensified -- they've become unsticky, as it were, and i don't know too many people who would argue the point.

for so long as this is true -- which i imagine will be the duration of the delevering of the american banking system and household at least -- one should expect SA to not quite do the job.

Labels: , ,

Good points--and I love that one about Lucent. The winner in my brokerage training class stock pitching contest in 2001 was a kid from northern NJ pitching LU. His rational was "Hey, it's Lucent. The stock is nine bucks (or whatever)."

He won by the vote of the other trainees--the perception of normal is even more dangerous when it is perceived to be so despite any rational consideration that it "should" be so.

------ ------- ------
Behold the Toronto house pictured above.

The lot is 25 feet wide – not enough for a driveway, so there’s a parking pad for two vehicles on the front lawn. The exterior is stucco over mystery materials. The inside features a new kitchen, pot lights, fireplace, three bedrooms and ‘an interior and exterior sound system.’

Property taxes are just under $10,000 a year. 35 Coulson Ave. was listed for $1.329 million, and sold for $1.329 million. Days on market: 4.

God help us.

Yup, That gonna be ugly

------ ------- ------
Fu*^ing insanity.

Houses: 19 million vacant
Houses: 4-5 million in inventory

Current condition:

Wave 2 Alt-A's and Option Arms and CRE, together 1.5 and 3.5++ trillion. If 1.5 trillion did this what will 5+++ trillion do.

Also, who the f*&( is going to get loans to buy this mega inventory? Wait, wait, don't tell me, the people who had subprime mortgages, or maybe the poor folks who lost their jobs and sent their keys jingling in, or maybe the folks who went BK?

Come on! These reporters should eat their keyboard and get a job washing car windows on a busy bridge.

------ ------- ------
ECRI going all out on housing, the economy, everything .

------ ------- ------
Charts here

------ ------- ------

Post a Comment

Hide comments

This page is powered by Blogger. Isn't yours?