Editore"s Note
Tilting at Windmills

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June 24, 2008
By: Kevin Drum

HOUSING UPDATE....Standard & Poors reported today that "annual declines in the prices of existing single family homes across the United States continued to worsen in April 2008."

Oddly, though, there might be a ray of hope in the actual numbers. The chart on the right shows the monthly percentage changes in the Case-Shiller 20-city index, and recent months have followed the usual seasonal pattern of bottoming out in winter and then picking up steam in spring and summer. However, that seasonal pattern is unusually pronounced this year, and it looks as if the sharp drop of early 2008 is being followed by an equally sharp recovery. Prices are still going down, but it's possible that a few months from now they'll come close to flattening out — in nominal terms, anyway.

Then again, maybe I'm grasping at straws. The mortgage market still sucks, millions of loans are still due to reset over the next two years, prices remain considerably over their historical values, etc. etc. Still, it's a housing chart with a trend line going up! When was the last time you saw that? Enjoy it while you can.

Kevin Drum 8:36 PM Permalink | Trackbacks | Comments (26)

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In what sense is this a ray of hope? The people who have lost their houses now face rising prices if they want to get back into the game (the more fools they, but still). The people who weathered the storm have more net worth than they had last month. Bully for them, but who cares?

The right price for owner-occupied housing is the right price for owner-occupied housing. Absent any evidence that the current rebound is correcting a price level that had fallen too low, we have no idea whether the rebound is a good thing or not. It could just be the bubble reasserting itself. Remember NASDAQ in 1999?

Posted by: Stuart Eugene Thiel on June 24, 2008 at 8:45 PM | PERMALINK

The relevant parameter is the ratio between house price and median income. Historically, housing is affordable if the ratio is 3 or lower. It is over 4.5 nationally, even higher in SoCal. There is a bigger fall in house prices coming.

Posted by: troglodyte on June 24, 2008 at 9:05 PM | PERMALINK

The market has 10 - 15% more to go before homes are affordable by people that work. (Maybe 30% in some regions.)

Anything else is bubble.

Its BETTER that if people are going to go into enormous debt, that they do so for an asset that has use value, than for speculative value.

Posted by: Richard Witty on June 24, 2008 at 9:07 PM | PERMALINK

Here in Philadelphia, the market is dead. Volume is way down- almost 30% YOY for April 08 vs April 07. Prices aren't off too much - if at all - but there are few buyers.

Posted by: lutton on June 24, 2008 at 9:25 PM | PERMALINK

Kevin..... you may want to consider seasonal variation. Across the whole plot there is a rise every year in the Jan Feb time frame. Housing markets are in fact seasonal aren't they?

Posted by: keramik on June 24, 2008 at 9:34 PM | PERMALINK

How can it be inherently good "in general" for the price of anything to be high? Yes I even mean stocks. One persons gain from selling is another persons equivalent hardship to buy. It is nothing to celebrate as a disinterested bystander.

The answer is, speculation and the pyramid scheme thereof. In an economy based on substantive value for utility itself, things would be relatively cheap, and not keep growing in relative value (think: how can such a circumstance be stable over indefinite time?)

Posted by: Neil B. on June 24, 2008 at 9:38 PM | PERMALINK

Could be a dead cat bounce.

Posted by: CarlP on June 24, 2008 at 9:39 PM | PERMALINK

Perhaps I'm reading it wrong, but if that's the monthly percentage change, everything under 100 is negative. Things are still going down, just not a fast as they were.

Posted by: joeb on June 24, 2008 at 9:57 PM | PERMALINK

How much of boost could we get by legalizing polygamy and encouraging the richest 1% to support tens or hundreds of households each?

Posted by: asdf on June 24, 2008 at 10:06 PM | PERMALINK

Dow Chemical raises prices big time all across the board for the second time in 5 weeks. Can anybody spell stagflation?

Posted by: Ron Byers on June 24, 2008 at 10:16 PM | PERMALINK

joeb, I agree with you. Kevin also confirms your interpretation when he says prices are still going down.

I think each value on the y-axis on Kevin's graph is labeled 100% more than it should be. E.g., the Jan. 2001 figure should be about 1%, rather than 101%, indicating that prices increased by 1% over the prior month.

Posted by: David on June 24, 2008 at 10:19 PM | PERMALINK

I feel sorry for President-elect Obama. He is inheriting an utter pile of shit of an economy. The American Nero - George W. Bush - has so completely fucked this country up it may never recover.

Why do Democrats always have to clean up after these filthy, irresponsible Republican assholes?

Posted by: The Conservative Deflator on June 24, 2008 at 10:45 PM | PERMALINK

Kevin, why don't you perform the same analysis for the S&P 500? I am sure you would be able to spot some historical trends that you could extrapolate to tell us where the stock market is headed. And this analysis would be every bit as useful as your prognostications of real estate prices.

Posted by: Bill Smugs on June 24, 2008 at 11:20 PM | PERMALINK

I think Congress is doing some good things which will improve the economy by the time our next president takes office. At that time the new president will have a lot of foreign affairs business to work on. So, a high level of trust and cooperation between Congress and the new president would help things zip along more smoothly and we can expect more of that if the new prez is a Dem.

Elect Obama because he'll usually sign bills Congress sends him instead of echoing the Bush veto threat.

Posted by: MarkH on June 24, 2008 at 11:43 PM | PERMALINK

For the last 6 months every figure and indicator that has come out, there's been some fool saying "on the other hand there are certain indications that (pick appropriately) 1) things might be about to improve, or 2) we may be approaching the bottom, or 3) there are certain areas of improvement, or (and most frequently) 4) things are not nearly as bad as people seem to think. Really! It's all going so well."

People call it as they see it. Over the last Bush years people got accustomed to living on increasing debt often on the back of appreciating homes. Most can't do that right now. Moreover, major items like property taxes, health care, food and energy all are well above the "core rate" of inflation. Any family that was just making ends meet before are struggling now. Is it their fault if they are told to aspire to upper middle income life on a decidedly middle level income?

And we are still getting frights out of the financial markets and are just beginning to see commodity costs really start to come through in industry.

Now if we could just engineer a recession in China and India we'd all be better off. Right?

Posted by: notthere on June 25, 2008 at 12:56 AM | PERMALINK

This country is going off a cliff economically and the bottom is a long ways down from here.

Posted by: on June 25, 2008 at 1:00 AM | PERMALINK

Kevin, the Case-Shiller is a year-over-year change, so seasonal changes within the housing market have nothing to do with the decline.

Instead of Keramik's suggestion to "reconsider" seasonal change, you instead need to junk the idea when commenting on the Case-Shiller or the S&P housing index.

C-S even says, when it releases its numbers every month, that it's a year-over-year comparison.

Posted by: SocraticGadfly on June 25, 2008 at 1:18 AM | PERMALINK

Maybe the uptick reflects a change in the mix (more sales of higher-end homes relative to middle-class ones)? It's the middle- and lower-income folks who are financially strapped. The Carlyse set, meanwhile, may be upgrading at these "bargain" prices.

Posted by: JeremiadJones on June 25, 2008 at 8:48 AM | PERMALINK


Dow Chemical raises prices big time all across the board for the second time in 5 weeks. Can anybody spell stagflation?

My boss mentioned candidly that this year's salary plan is the most dismal he has seen in his twenty years. My personal experience is back to '78 and I think it may have been a bit more dismal then but I was at the start of the salary curve then so I don't know for sure.

And, yeah, I know how to spell stagflation.

Posted by: Tripp on June 25, 2008 at 10:38 AM | PERMALINK

I am confused here, as a libertarian with a lot of respect for some liberal positions and little respect for others.

When most consumer prices rise, don't you lament the impact on the common man? When consumer prices fall, don't you cheer the rise in affordability? Don't you scorn those in the internet field or the oil industry who make fortunes on pricing bubbles, and show some relief when these bubbles come to earth? Don't you call for windfall profits taxes on people who benefit from arbitrary pricing bubbles?

So why is everything the opposite in housing? Housing becomes more affordable, and in this post you seem to bemoan that. You never called for windfall profits taxes on people who made quick fortunes in the housing bubble, even though they did far less work for that fortune than, say, an oil company. Couldn't you easily have said that housing prices were driven by "speculators" whose behavior is far worse than, say oil traders.

Posted by: coyote on June 25, 2008 at 11:46 AM | PERMALINK

coyote, you're not describing a liberal blind spot. You're describing a home-owner blind spot. Conservative home owners have it too.

It's crazy, because the only class of home owners who should really be unhappy about falling house prices are the down-sizers, those who, say, have children who are all fled from the nest, and who are looking for a smaller house to realize some of the equity they've been putting into the big one. Anyone else, who is looking for their next house to be bigger or nicer, should be celebrating the price fall, even if their own house also falls in price in proportion.

If A halves, and B halves, then (B-A), the difference between the two, which is what you have to find in cash in order to make the transition, also halves.

Nobody ever says "Oh no, oh no! cars are getting cheaper! That means my car is losing its resale value!"

Posted by: derek on June 25, 2008 at 12:27 PM | PERMALINK

This country is going off a cliff economically and the bottom is a long ways down from here.
Posted by: _______

Um, yeah. Can y'all hear me now?

"Nearly all of the 70 million people being added to world population each year are born in countries where natural support systems are already deteriorating in the face of excessive population pressure, in the countries least able to support them. In these countries, the risk of state failure is growing." — Lester Brown, Earth Policy Institute
Posted by: MsNThrope on June 25, 2008 at 12:30 PM | PERMALINK

My personal experience is back to '78 and I think it may have been a bit more dismal then but I was at the start of the salary curve then so I don't know for sure. - Tripp

In 1979 a hundred dollars earned in January was worth $87 by December.

I can spell just fine, thanks.

History is a vast early warning system. -Norman Cousins

Posted by: MsNThrope on June 25, 2008 at 12:33 PM | PERMALINK

The vast majority of Americans are too stupid or too addled by marketing to realize that houses are not an "investment" but a durable good. But what's the fun of having a fixed cost roof over your head (with attendant maintenance and tax expenses) when you can treat it as an endless piggy bank for buying SUVs an vacation homes an $200,000 remodelling "investments"?

Posted by: anon on June 25, 2008 at 12:43 PM | PERMALINK

mhr: Liberal political fortunes soared with the coming of the Great Depression

GOP President - Crash of 1929
GOP President - Crash of 1987
GOP President - S & L Scandal
GOP President - Sub-prime Mortgage Scandal

Posted by: mr. irony on June 25, 2008 at 2:09 PM | PERMALINK

013975.. Retweeted it :)

Posted by: www.washingtonmonthly.com on April 17, 2011 at 5:06 PM | PERMALINK
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