Tuesday, September 30, 2014

Case Shiller declines for third month at annual rate of 6%.


In the September report, S&P refers to a “Broad-Based Easing of House Price Gains in July”. They do not discuss the drastic decline that occurred since April.  The last high month was in March where most sales prices were negotiated in January.  The last four months are a sharp disconnect with previous months. While the Case Shiller  cities are declining, the rest of the nation is growing. In the second quarter the FHFA expanded index grew at an annual rate of 5.5% vs. -2.0% for the case Shiller 20 Cities. The Case Shiller has grown faster than the national rate since prices turned positive in 2012.  The areas outside the Case Shiller did not grow as fast in the boom and are lower priced. While Case Shiller has a national index,  it covers only urban areas so it is not representative of national performance.

The following chart illustrates the monthly seasonally adjusted Case Shiller performance at an annual rate.




S&P uses year over year comparisons to make the index appear smoother and more reliable than it is. This masks what is happening in the market.  The growth beginning in 2012 is one of the mini cycles since the peak in June 2006.  After this peak, house prices fell for three years, before picking up in 2009 with the house purchase tax credit. When the tax credit ended the prices fell in 2010. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases led investors and buyers to pile in, creating a peak in February 2013.  The investors started to leave at that point and rate of price increase declined.  

The cities in the table below are in order of the growth in the 9 year expansion from June 1997 to June 2006. They are grouped by cities that move in a similar pattern.  The chart compares the 3 months average ending in January with the average ending in July.  All of the cities experienced declining growth.

2014 Case Shiller 
Three Month Moving Average
Annual Rate 
Percentage
Jan-14
Jul-14
Point Change
Los Angeles
8%
0%
-8%
San Diego
13%
-2%
-15%
San Francisco
22%
-7%
-29%
TL California
12%
-2%
-14%
Miami
16%
0%
-16%
Tampa
13%
2%
-12%
Las Vegas
14%
7%
-7%
TL Resorts
15%
1%
-14%
Washington
10%
-7%
-18%
New York
8%
-2%
-10%
Boston
8%
-9%
-17%
Seattle
8%
-1%
-9%
TL Large Cities
8%
-4%
-12%
Phoenix
6%
-1%
-7%
Minneapolis
10%
-15%
-24%
Chicago
8%
-13%
-22%
Portland
12%
-2%
-14%
Atlanta
12%
-11%
-23%
Detroit
12%
-10%
-22%
TL Medium Priced Cities
9%
-10%
-19%
Denver
10%
1%
-9%
Cleveland
5%
-7%
-12%
Charlotte
5%
0%
-4%
Dallas
11%
2%
-9%
TL Stable
9%
0%
-9%
Composite-20
10%
-4%
-15%


This is a short term impact of the decline. Longer term the cities should perform differently based on the price level compared to the beginning of the housing cycle.   Cities like Los Angeles should decline more because the prices are much above those at the start of the cycle while lower priced cities like Atlanta should perform better.