A More Colorful View of Case-Shiller Home Prices

By Tim on 08/01/2012 in Housing

The U.S. housing market has had a good few months or so with more and more pundits noting that this sector will finally, again make a positive contribution to economic growth rather than being a drag, however, when looking at the Case-Shiller Home Price Indexes for the 20 cities it tracks, the recent gains don’t appear all that impressive - so far, just another small move higher that occurs regularly at this time of the year.

Diana Olick throws a little cold water on the housing party in this story at CNBC, citing a temporary slowdown in foreclosures that has limited inventory and freakishly low mortgage rates that may not last forever.

I guess we’ll find out in a few months whether the housing recovery is real…

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2 Responses to A More Colorful View of Case-Shiller Home Prices

  1. Steve White August 1, 2012 at 8:22 AM #

    I suspect that housing will bounce along at current levels for many years. It looks as if America is following Japan’s lead with eternal ZIRP.

    This means we can expect 20+ years of ultra-low interest rates as the Fed desperately struggles to keep our economy from a total collapse and dreams of a robust recovery based on increased borrowing and the magic of fractional reserve banking.

    I doubt interest rates will ever be allowed to rise since everyone knows such a rise would wipe out just about every sector of our fragile, debt-based economy today. Hoping that it will somehow magically get better tomorrow is the only option for BB and pols at the moment. This locks us into following Japan and guarantees no one will save any money that might be used for something like a 20% down payment on a house.

    Despite the Fed’s dreams of recovery based on new borrowing, the reality is that few people are borrowing (they can’t or won’t) and the banks are staying alive earning interest on excess reserves that now total well over $1 Trillion (free bail out money earns 0.25% interest; that’s a no-brainer) rather than taking the risk on new loans that might default.

    Banks also need to clear out years worth of defaults and foreclosures without marking them to market so they have no incentive to foreclose and then list REO properties at low prices. Many homeowners who missed out on the boom are eager to sell their houses and move or downsize but can’t/won’t do it now with prices so “low.” This huge shadow inventory will come on the market every time prices start to recover a bit. This excess supply will halt price gains in most areas for years and years.

    While millions of overpaid Boomers are retiring (public employees now retire at 55) and are eager to ‘cash out’ and downsize, the next generation is smaller, debt-laden, insecure, unemployed or under-employed and not as willing/able to buy McMansions with zero down, interest only loans as their foolish parents did, regardless of interest rates.

    We can only have so many people in the medical field and the military. Wildly over-compensated public sector jobs are ending as taxes dry up and the public gets fed up with the rape and pillage or the public purse. (If you don’t get that, consider the recent spate of city bankruptcies in California.) Unemployment and lower paying jobs are the new normal and the numbers are FAR worse than reported. Who will buy all these houses?

    Spring and Summer are the prime selling times for housing and interest rates are at historic lows. If this is the best the market can muster, it’s hard to believe this winter is going to be better. It’s likely to get worse.

    Just look at the chart in this post and consider how long it’s going to take to work out all the malinvestment that resulted from that massive spike in mid-2006.

    It’s hard to be optimistic…

    Reply

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