Search
All
Economics
Politics

Case-Shiller Home Price Declines Steepen, How Low and How Fast From Here?

•

•

33 comments on Case-Shiller Home Price Declines Steepen, How Low and How Fast From Here?

•

Case-Shiller home price data via St. Louis Fed, chart by Mish

Home Price Synopsis

Home prices have peaked this cycle but the decline is certainly tiny compared to the run up.

Case-Shiller lags. August is the latest data and that represents sales primarily made in June and July so the declines shown are undoubtedly understated.

CS National ,Top 10 Metro, CPI, OER

Case-Shiller home price data, OER, and CPI data via St. Louis Fed, chart by Mish

Home Price Disconnect Notes

  • National is the Case-Shiller national home price index.
  • 10-City represents the weighted average of the cities in the first chart.
  • CPI is the Consumer Price Index
  • OER stands for Owner’s Equivalent Rent. It is the single largest component in the CPI with a current weight of 23.65% of the total CPI.
  • Rent of Primary Residence is a CPI component with a weight of 7.25% of the CPI.

OER is the price the Bureau of Labor Statistics (BLS) says one would pay to rent one’s own house from oneself, unfurnished, without utilities.

Percent Change January 2020 to August 2022

  • Case-Shiller National: 42.99 Percent
  • Case-Shiller 10-City: 37.65 Percent
  • OER: 10.40 Percent
  • CPI: 14.81 Percent

Percent Change Since June 2022

  • Case-Shiller National: -1.55 Percent
  • Case-Shiller 10-City: -0.55 Percent

Existing Home Sales

Existing home sales data from National Association of Realtors via St. Louis Fed, chart by Mish

Key Points

  • The Fed fueled a speculative bubble in housing, purposely, by reckless QE and unreasonably low interest rates.
  • Despite the dramatic decline in sales, prices have barely begun to fall.
  • It’s a long way down from here in terms of time and price if sellers hold firm. 
  • Recent buyers have little choice, they are locked into their homes due to mortgage rates that have soared. 

Trapped In Their Homes

Who wants to trade a 2.5 percent mortgage for a 6 or 7 percent mortgage unless home prices crash? The current national average rate is 7.22 percent according to Mortgage News Daily.

Given that cyclical components like housing and durable goods drive the economy, if the Fed succeeds in a slow walkdown, the economy will be weak for years.

The Fed blew an enormous bubble and these are the consequences. 

Cyclical Components of GDP, the Most Important Chart in Macro

If you missed it, please note Cyclical Components of GDP, the Most Important Chart in Macro

My follow-up article was A Big Housing Bust is the Key to Understanding This Recession

Housing leads recessions and recoveries and housing rates to be weak for a long time.

Add it all up and you have the opposite of the Covid-recession, a long period of economic weakness with minimal rise in unemployment.

It does not matter whether you label this a recession or not. Besides, the NBER might not even announce the recession until it’s over. That happened once already.

This post originated at MishTalk.Com

Please Subscribe!

Like these reports? I hope so, and if you do, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish 

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Comments to this post are now closed.

33 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
StukiMoi
StukiMoi
3 years ago
“Home prices have peaked this cycle”
At some point, these “cycles” inevitably have to end. Even the most determined of central banks, cannot continue to hand stolen wealth to deadweights simply sitting on their rears in decaying shacks forever. Sooner or later; all the wealth will simply have been stolen. Leaving no more left to steal.
It is, after all, not as if the mold in the shacks’ walls actually create any wealth. Hence, whatever added wealth accrues to those simply “owning” the shacks; has to have been created by someone else. Then stolen from him, such that it can be handed over to the shack “owner”, under pretense that the mold in the walls of his decaying shack somehow created wealth for him.
I realise that what these days pass for “economics,” consists of little more than obfuscations for theft, with perhaps a large allowance for the tooth fairy to make things more palatable for the theft beneficiaries. But ultimately, no matter what Krugman may insist on: The tooth fairy still doesn’t exist! Leaving the only thing which does, the theft. And while theft can no doubt be lucrative for the thieves for quite some time: Ultimately, when theft is all there is; sooner or later you will run out of things to steal, which you have not already stolen. And then, there are no more “cycles.” At least not “cycles up.”
0
0
Mish
Mish
3 years ago
A few symbols
CVNA
NICK
CPSS
Carvana is an online used car retailer based in Tempe, Arizona. The company is the fastest growing online used car dealer in the United States and is known for its multi-story car vending machines.
CVNA got absolutely killed with no recovery
Last two are bouncing with the latest market rebound
NICK is an auto lender
I don’t follow these just looked now
0
0
MarkraD
MarkraD
3 years ago
Reply to  Mish
CVNA, total liabilities almost equal to assets, their debt has increased dramatically in the last year, they may have been caught off guard by the Fed.
0
0
8dots
8dots
3 years ago
The easiest way to wake up zombie c/s is to cut “programmers” head count in SF and Seattle with an ax..
0
0
FromBrussels2
FromBrussels2
3 years ago
Mish , if you don t mind me asking ; do I have to buy treasuries now , or more gold like you recommended at one point , even Meta shares or other BS investments ? Help me, I am fckn clueless….probably like you ….difference bein that unlike me , you make some dough being clueless…Thanks anyway …..
0
0
Jack
Jack
3 years ago
Reply to  FromBrussels2

Comrade, I recommend to buy potato. Potato have great value in my country. They good also to eat.

0
0
JRM
JRM
3 years ago
Reply to  Jack
Well as an American i would recommend you buy your groceries “NOW”, cause you may not be able to find it on the shelf this winter!!!!
0
0
Six000mileyear
Six000mileyear
3 years ago
The topping process in the Housing bubble took 2 years to complete. Now the chart is showing a top that took only a few months. There is a lot of potential for a sharp fall in the housing market.
0
0
Tony Bennett
Tony Bennett
3 years ago
Reply to  Six000mileyear
What will be interesting is to see what the “low rate” folks do. Everyone assumes they will be strong hands since they don’t want to give up low rate, but I have serious doubts if prices tank.
The “low rate” crowd purchased or refinanced into a low rate in the past 3 years. Neither has probably built much equity (amortization schedule reboots at refinance … with almost all interest paid the first few years … almost all principal paid the last few years). Fannie Mae will allow loans with as little as 3% down. If someone purchased a home for $500K … with $15K down … and prices start to tank … value of home falls to $450K … then $420K … then sub $400K … that person is way underwater no matter his “low rate”. Will he stick it out? Or will he take the credit hit and walk … especially, when everyone else “doing it”?
0
0
Captain Ahab
Captain Ahab
3 years ago
Reply to  Tony Bennett
With low interest rates, the repayment of principal is faster. Go here:
Play with the interest rate. Watch the graph change. Try 0% and the loan balance decreases as a straight line.
My point is prices must drop significantly for equity loss (for low interest rate loans). What is more likely IMHO is the ‘lenders’ implode.
0
0
Tony Bennett
Tony Bennett
3 years ago
Reply to  Captain Ahab
True.
I ran the calculator for my example with start date October 2022. Used 30yr mortgage at 3% with typical insurance + property taxes. By October 2024 the principal paid down to $464K.
0
0
xbizo
xbizo
3 years ago
Reply to  Tony Bennett
If they lost the principal and can rent for significantly less, some will let the house go, but it is a big emotional and credit rating hit. Not for the average household
0
0
xbizo
xbizo
3 years ago
Mostly good imo. Two thirds of homes are owned and maybe $6 trillion in mortgages were refinanced under 4%. OER is going to overstate inflation because the majority have lowered their costs and those costs are locked in. Household cash flow is not worse but better, or at least the same as last year, so do not see a force for contraction due to housing. Do agree that durable goods spending should be less going forward because homes will not be turning over. Home remodeling should be strong.
I think the spread in mortgage rates over the 20-year treasury is telling us something. It’s normally about .8 points which would be 5.3% mortgages, but 7% mortgages are a 2.5% spread. That’s a lot.
0
0
xbizo
xbizo
3 years ago
Reply to  xbizo
California example, so numbers are high. Mortgage and property tax at $5300 in 2015. Mortgage and property tax are now $4400. Can rent for $6500 per month. Rents up 15% in the last year, but my costs fell 2% annually for seven years.
0
0
Christoball
Christoball
3 years ago
Real Estate is worth only what appraisers value homes at and what banks are willing to lend.
0
0
shamrock
shamrock
3 years ago
And yet core inflation has not budged, the fed has no idea what they are doing. They weren’t able to cause inflation and now they are unable to stop it.
0
0
Business Man
Business Man
3 years ago
Reply to  shamrock
Correct. The only way to safely stop this inflation is to help the supply side meet the demand. Energy is the biggest input for most goods and materials. If the Administration pursued energy-friendly policies the cost would come down, and so would inflation.
The Fed can only kill off demand with a blunt instrument, and it is akin to just shooting into a fish tank until enough things die and float to the top to even off the demand with supply.
The answer is not the Fed, but the government itself. And the Biden administration shows no understanding and willingness to meaningfully solve the problem.
0
0
MarkraD
MarkraD
3 years ago
Reply to  Business Man
“Correct. The only way to safely stop this inflation is to help the supply side meet the demand.”
Thank you
“The Fed can only kill off demand with a blunt instrument,”
thank you
“And the Biden administration shows no understanding and willingness to meaningfully solve the problem.”
Let’s see what happens with Chevron’s renewed request to drill in Venezuela, a choice of the lesser of two evils.
0
0
Captain Ahab
Captain Ahab
3 years ago
Reply to  Business Man
Given that the ‘supply side’ has had a cost of capital near 0% for 12 years, they have received more than enough help. It was mostly wasted on buybacks and acquisitions.
What is needed is a deep recession that flushes the ineffective companies, and stimulates innovation. The same is true of government, but will NEVER happen.
0
0
MarkraD
MarkraD
3 years ago
Reply to  Captain Ahab
“Given that the ‘supply side’ has had a cost of capital near 0% for 12 years, they have received more than enough help. It was mostly wasted on buybacks and acquisitions.”
I actually agree, but when he says “supply” I think he’s talking literally, not blind corporate welfare.
0
0
Business Man
Business Man
3 years ago
Reply to  Captain Ahab
I was referring mostly to the regulatory structure, not governmental capital stimulus. Allowing for more and less costly market activity will encourage current participants to produce at a lower cost and, if done properly, encourage additional market participants at that lower supply cost curve. Energy can range from the most obvious of oil production, but also to natural gas, nuclear and renewables. Support bringing as much online as the market can bear.
Then, look at the next (very close) very important input of labor. Reduce incentives to not work dramatically, and encourage additional work by existing participants and more. Encourage employees, not necessarily employers (there is already a huge amount of labor demand, and no more stimulus is needed for that).
Reducing import restrictions would also help, by eliminating tariffs.
Do everything you can to encourage production and get the products to market to bring prices down the supply curve.
0
0
v5nthkmr
v5nthkmr
3 years ago
Could someone explain the Chicago pricing dynamics? It is only a bit over the previous bubble as opposed to the rest of the big metros which shot up significantly. What kept the Chicago bubble suppressed as compared to the rest?
0
0
radar
radar
3 years ago
Reply to  v5nthkmr
I heard everyone was leaving that city so maybe that has something to do with it…
0
0
Mish
Mish
3 years ago
Reply to  radar
Property Taxes and Illinois Governance
$15,000 property taxes on a home we sold for under $400,000
0
0
Captain Ahab
Captain Ahab
3 years ago
Reply to  Mish
The safest city in North America, the school district was ranked in the US top ten, and the public unions were fully funded… NOT!
0
0
Avery
Avery
3 years ago
Reply to  radar
CWB Chicago – Chicago public safety and crime news
Chicago Crime, Murder & Mayhem | Criminal Infographics | HeyJackass! | Illustrating Chicago Values
0
0
Tony Bennett
Tony Bennett
3 years ago
“It’s a long way down from here in terms of time and price if sellers hold firm.”
…
I’ll take “weakest link” for $800 …
Once the dominos start to fall … katie bar the door …
0
0
TexasTim65
TexasTim65
3 years ago
Reply to  Tony Bennett
Rent puts a floor on how far things will fall.
Once homes fall to the equivalent or lower of the rental market that should be when the floor will be found. It doesn’t even have to be individual homeowners either, it could easily be big investment funds like Blackrock that buy swathes of homes and put them up for rent.
0
0
Tony Bennett
Tony Bennett
3 years ago
Reply to  TexasTim65
“Rent puts a floor on how far things will fall.”
…
Sure.
Rent floor “might” give way, as well. Job losses will see to that.
“Welcome to the October 2022 Apartment List National Rent Report. Our national index fell by 0.2 percent over the course of September, marking the first time this year that the national median rent has declined month-over-month. The timing of this slight dip in rents is consistent with a seasonal trend that was typical in pre-pandemic years. Assuming that trend continues, it is likely that rents will continue falling in the coming months as we enter the winter slow season for the rental market.”
0
0
Christoball
Christoball
3 years ago
Reply to  Tony Bennett
There is nothing that lowers rents more than vacancies.
0
0
Captain Ahab
Captain Ahab
3 years ago
Reply to  TexasTim65
Rentals are investment property with a required rate of return (yield). Massive rent hikes are already underway–enough to compensate for property price drops?
0
0
StukiMoi
StukiMoi
3 years ago
Reply to  Captain Ahab
Not sure how much “compensation” massively hiking rents on people who no longer have a job paying even minimum wage will do……
Higher interest rates demand higher rents per valuation. Combine that with every so called “job” by now ultimately being paid in money earned from ever more pumped up valuations (of all manners of overpriced garbage, not just cheap, Pelosi style shacks.)
Any “model”, formal or not; which treats salaries/jobs and asset valuations as independent variables; when literally the entire “economy” by now consists of nothing other than an endless number of variations of pingponging the same decaying “assets” back and forth while taking a cut; is as naive as Bugs Bunny continuing to run into open air, until something causes him to look down.
0
0
Tony Bennett
Tony Bennett
3 years ago
MBA expects a recession and job loss in industry:
The Mortgage Bankers Association (MBA) announced today that total mortgage origination volume is expected to decline to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022. Purchase originations are forecast to decrease 3 percent to $1.53 trillion next year, while refinance volume is anticipated to decline by 24 percent to $513 billion.
“MBA’s forecast calls for a recession in the first half of next year, driven by tighter financial conditions, reduced business investment, and slower global growth. As a result, the unemployment rate will increase from its current rate of 3.5 percent to 5.5 percent by the end of the year. Inflation will gradually decline towards the Fed’s 2 percent target by the middle of 2024.”
“Origination volumes have declined, revenues have dropped, and expenses continue to rise,” said Walsh. “Lenders have started to shrink excess capacity by reducing staffing levels, exiting less profitable channels or exiting the business entirely.”
MBA estimates that a 25 percent to 30 percent decrease in mortgage industry employment from peak to trough will need to occur, given the decrease in production volume from the record levels in 2020 and 2021.
0
0

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.