Real House Priceswe’ll start today by looking at the case shiller home price index for december, noteworthy because all three of their composite indexes ended the year at new post bubble lows, both seasonally adjusted and in absolute terms…again, the case shiller reports encompass unweighted home prices reported over 3 months, so these reports also includes october & november; both the 10 city & 20 city composite indexes fell 1.1% from the november level, and were down 3.9% and 4.0%, respectively, against the price readings of december 2010…the case shiller national index, which is only reported quarterly, was down 3.8% in the 4th quarter from the 3rd quarter, and down 4.0% from the 4th quarter of 2011…according to these C/S indexes, home prices are now nearly 34% off their early 2006 peak and nominally back to price levels of the 3rd quarter of 2002; although on a seasonally adjusted basis, the 20 city index is still at the january 2003 price level…for the 20 ciites covered, only the depressed cities of phoenix & miami posted a gain in december over november’s prices, and only detroit’s home prices were higher than a year ago, reflecting a recovery in the auto industry…the WSJ produces an interactive sortable table of the 20 cities in the index, should anyone want more details…since home prices reported by case shiller & the other real estate services are in nominal terms, it’s useful to take a look at what home prices would be in real, inflation adjusted terms, which is what bill mcbride at calculated risk doeshis adjacent graph shows the seasonally adjusted case shiller national index in yellow, the C/S 20 city index, also seasonally adjusted, in red, & the corelogic index december price index in blue, each adjusted for inflation using the CPI less the shelter component; in those terms, the national index is back to the last quarter of ’98 levels, the 20 city index is back to march 2000 prices, and the CoreLogic index back to levels of december 1999; note the corelogic index is not seasonally adjusted, so by clicking on the graph you can see the distinct seasonal pattern, whereas even as prices are falling overall, they still rise during the warm months…that may account for the reason that home prices in southern cities like phoenix & miami dont move in step with those in the rest of the country…

CoreLogic, Negative Equity by Statesince case shiller is the last of the monthly home price indices to report, and since their unweighted 3 month index tends to lag current transactions even more, it’s useful to take a look at some of the other price indices which have reported previous to this week to get a complete & currrent picture; the CoreLogic national index, which is represented in the chart above, also covers the same three months, but it’s weighted to give more recent home sales greater representation in the result, and also covers more zip codes than case shiller’s national index; hence, its the home price index the Fed follows…the December corelogic report, which was out early february, showed that national home prices, including distressed sales, decreased 1.4 % on a month-over-month basis, the fifth consecutive monthly decline; their prices for the entire year were down 4.7%; on the other hand, the FHFA (Federal Housing Finance Agency) reported prices for the 4th quarter on Fannie & Freddie acquired mortgages to be down on 0.1% from the 3rd quarter on a seasonally adjusted basis; over the year, prices on those homes declined 2.4%; they also reported that as an inflation-adjusted price decline of approximately 6.2 percent…FNC reported single-family home prices in their national index fell in December at a seasonally unadjusted rate of 0.7%; their MSA index, which excludes foreclosure sales, also reported a decline of1.1% in the nation’s top 10 housing markets; and Zillow, shadowing the Case Shiller index, reported a 4.0% annual home price decline

CoreLogic also reported on negative home equity for the 4th quarter this week; 11.1 million residential loans, or 22.8 percent, of all such properties with a mortgage were in negative equity at the end of the fourth quarter of 2011; put simply, these are the homeowners who owe $715 billion more on their mortgages than their home is worth at today’s prices; an additional 2.5 million borrowers had less than 5% equity, which they referred to as near-negative equity; the report also broke out the negative equity situation by state, which is what the 2nd chart to the right shows…click on the graph to open a larger image; you’ll see those spikes at the end represent nevada, where 61% of homes are “underwater”, arizona, with 48% underwater, and florida, with 44% underwater…

  there was a lot of blog talk this week as to when housing would “recover”; some of it undoubtedly sprung from warren buffett’s annual shareholder letter (pdf), where he laid out his predictions, even though he’s been wrong about a housing recovery more times than most can count; this week he made headlines with his view that “hormones” would help spark a housing recovery; the problem, as buffett and even some wonks see it, is that young people, at the normal household formation and home buying ages of 25 to 34, are still living in doubled up rentals or at home with their parents, and they represent a large potential pent-up demand for houses, as soon as they move out & start raising families…unfortunately, these potential home buyers can’t use their hormones as a down payment, and for the most part, as dave dayen at FDL points out, they’re still saddled with significant student debt; matt stoller further notes that even college grads with 6 figure incomes cant qualify for a mortgage because of student debt liabilities, and as i’ve noted previously, the BLS projects that 4 out of 5 of the new jobs in greatest demand this decade will be low paying, low skilled positions that dont even require a high school diploma, hardly the type that can qualify for a large mortgage…furthermore, there was a new report out this week from the center for housing policy that nearly one in four working households already spends more than 50 percent of its income on housing; renters have seen their rents rise 4% as their incomes declined, while the annual median income for working homeowners fell from $43,570 to $41,413 over two years, about a 5% decline…furthermore, there’s been a trend in new hires to only open temporary or part-time positions so employers dont have to pay benefits…so until such time as more people are back to work full time at decent wages, and young people get out from under their debt load, the housing glut will persist and home prices will have no where to go but down…

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there were a number of economic reports out this week, but it was hard to draw anything conclusive about our direction from them; we’ll start by looking at the second estimate of 4th quarter GDP, which was revised upwards to an annual growth rate of 3% from the first estimate last month of a 2.8% annual growth rate; there wasnt a great change in any GDP component, rather, the change was accounted for by incremental changes in several areas; the largest component, personal consumption was revised up to have increased 1.52% from 1.45% in the advance estimate, largely on strength in auto sales; investment growth contributed 2.42% rather than the 1st reported 2.35%, mostly on growth of private inventories; government spending continued to contract, taking .89% off the quarter’s growth, and both exports and imports were slightly less than first reported, and on balance knocked .06% off the growth rate rather than the .11% first reported…the report on new orders for durable goods for january was released by the census bureau (pdf) this week; orders decreased $8.6 billion or 4.0 percent to $206.1 billion, the largest drop in 3 years; transport equipment had the largest decrease, $3.6 billion or 6.1% to $55.2 billion, mostly because of weakness in nondefense aircraft and parts; excluding transportation, new orders decreased 3.2%; excluding defense, new orders decreased 4.5%; generally, the collapse in orders was attributed to the Jan 1st expiration of tax incentives for equipment purchases…doug short, who posts an extensive series of graphs on durable goods components, also produces a series of graphs with durable goods adjusted for inflation and per capita, which gives us a much clearer picture than the monthly census reports which just give nominal growth as influenced by inflation and population growth; im including here to the right his adjusted chart for durable goods excluding defense; the red track is durable goods per capita, typically cyclical; the blue graph line adjusts durable goods orders per capita for inflation; you can see the obvious precipitous decline; by that metric, durable goods orders are 41.2% below the level of january 2000…

the cycle of regional Fed manufacturing surveys, most of which reported last week, completed this week with both the Dallas Fed and the Richmond Fed reporting stronger expansion in February, and with the Chicago PMI (purchasing managers index) accelerating to a reading of 64.0% in February from 60.2% in January, expectations were for a strong ISM (Institute of Supply Management) report; however, the ISM PMI was reported at 52.4% in February, down from 54.1% in January (where over 50 still indicates expansion), prompting Goldman to cut it’s estimate of first quarter GDP for the second time in the same day, from an original 2.3% annual growth rate to a new forecast of 1.9%…the Fed also released it’s “beige book”, which is a summary of economic conditions from each of the 12 Fed districts on January 31st, and they reported economic improvement characterized as “modest” or “moderate” in every district; the NY Times has a graphic showing all 12 Fed districts with a paragraph on conditions in each as gleaned from the Fed report…

Vehicle Salesanother important economic report out this week was the Personal Income and Outlays for January from the BEA, which showed that personal income increased $37.4 billion, or 0.3%, and disposable personal income, which is income less taxes, increased $14.1 billion, or 0.1 percent, while consumption expenditures (spending) increased $23.2 billion, or 0.2 percent; this had been forecast to be higher after weakness in december, and adjusted for inflation, we essentially have almost no growth in both income and spending over the past three months; important because consumer spending still accounts for roughly 70% of our economic activity; doug short again further refines this report by computing disposable personal income per capita; by that metric, we have no growth over 20 months and are still at the same level as we were in November 2006…this BEA report also includes a personal consumption expenditures price index, which is the measure of inflation the Fed is now watching and attempting to hold at 2%; the headline PCE price index registered 2.36% year over year; the core PCE price index, excluding food & fuel, came in at 1.88% over last year; both measures were down slightly from last month’s report; in contrast, the core consumer price index from the BLS, which the Fed had been targeting until a few months ago, was last reported at 2.28%…finally, probably the best piece of economic news we had this week was the Autodata estimate for light vehicle sales for February, which were estimated to be at annual rate of 15.1 million, which would be up from the reported 14.13 annual rate last month, and a similar 14.1 annual rate a year ago…you can see that we’ve even beaten the aberrant spike in car sales resulting from the “cash for clunkers” program of 2009 by clicking on the adjacent chart; the blue bars, official numbers from the BEA, are distinguished from the red Autodata estimate…the only caveat we can attach to that number was the warmer than normal february, which may have brought more shoppers into the dealers lots…and we’ll also have to watch for the potential impact of higher gas prices, now up 49c over 10 weeks, on car sales going forward as well…

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)