The U.S. national housing bubble has COMPLETELY DEFLATED

When I updated my inflation-adjusted real estate charts early this morning I was shocked at what I saw. The U.S. national housing bubble is finally gone.


That said, there are still many local bubbles, especially in the Northeast and the West Coast. In contrast, other regional markets such as many of those in the Rust Belt and the Sun Belt are now either fairly valued or undervalued.

I have argued in the past that real estate prices don't overshoot to the downside. The next few quarters will reveal whether I was right or wrong about that.

S&P/Case-Shiller down 4% YoY; Down 0.1% MoM

The new S&P/Case-Shiller indices are out:

According to the S&P/Case Shiller 20-city index, prices rose 0.7% compared with March, although they fell 0.1% when adjusted for the strong spring selling season. Prices were down 4% year-over-year.

"In a welcome shift from recent months, this month is better than last — April's numbers beat March," said David Blitzer, S&P's spokesman, in a statement. "However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season."

These Case-Shiller numbers really represent March more than April. The S&P/Case-Shiller indices are trailing 3-month indices. The "April" numbers really represent the combined average of February, March, and April.

I think you guys all know I much prefer year-over-year numbers to month-over-month numbers. The longer time span makes them far less volatile, plus they are automatically seasonally adjusted.

That said, the non-seasonally-adjusted uptick suggests that spring home sales picked up like clockwork. It also suggests that the whole stock market freakout about a possibly weakening U.S. economy over the past two months may be a bit misplaced. I expect to see the month-to-month non-seasonally-adjusted housing numbers to continue rising over the next 5 months or so.

Lowest tier of housing falling the most

The new S&P/Case-Shiller numbers come out later this morning. In the meantime, I thought I'd show you guys this little graph from CNBC. It shows that since the peak, the lowest tier of homes have fallen the most. But, the reason they have fallen the most is because they rose the most during the bubble.

More housing graphs

Stephen Gordon, of the Worthwhile Canadian Initiative blog, has some interesting housing graphs. U.S. inflation-adjusted per capita housing assets are back to 2000 levels:

U.S. inflation-adjusted per capita housing equity is through the floor:

Stephen Gordon writes:

I was able to check the last time the real, per capita value of US housing equity was at its current level. Even after looking at all of these graphs, the answer astonished me: 1978. Nineteen seventy-freaking-eight.

While the rise and fall is obvious from these two graphs, the thing I notice is that they were both basically flat prior to 1998. In fact, that's what Robert Shiller's research says: Inflation-adjusted housing values tend to be flat over time. The only way per capita real housing assets should rise is if people build larger houses.

Economic outlook: blah

Things aren't looking good for the U.S. economy:

Ben Bernanke and the rest of the Federal Reserve have grown more pessimistic about the state of the U.S. economy.

At the conclusion of a two-day policy meeting, the central bank said that while the recovery is continuing at a moderate pace, growth is somewhat slower than expected. It also said the jobs market is "weaker than anticipated."

It also issued new economic projections that call for slower economic growth, higher unemployment and higher inflation in 2011 and 2012 than in its previous forecast. At a press conference Wednesday afternoon, Fed chairman Bernanke referred to the new forecast as a significant revision.

The Fed said in its statement that it believed some of the headwinds would be short-lived, including supply disruptions from the Japanese earthquake, and the "effect of higher food and energy prices on consumer purchasing power."

But Bernanke said he and other Fed policymakers aren't certain how much of the weakness is due to those temporary factors and how much is due to longer-lasting problems.

He said continued problems in the housing market, excess private sector debt and weakness in the financial sector might be more serious than previously thought. And he suggested the labor market is a long way from being healed.

Why you should get an iPhone and skip Google Android

Apple is far stricter than Google about what apps can be sold for its smart phone. That lack of freedom has an upside: less vulnerability to malware:

The security of Google Android has once again been called into question after an academic researcher discovered 12 malicious apps hosted in the operating system's official applications market, some that had been hosted there for months and racked up hundreds of thousands of downloads.

Ten of the apps reported last week by North Carolina State University professor Xuxian Jiang contained highly stealthy code that collected users' browsing history, bookmarks, and device information and sent them to servers under the control of the attackers. The professor said they also contained a backdoor largely made possible by a weakness documented at a security conference 12 months ago that allows Android apps to be surreptitiously updated.

The malicious titles also contained functions that allowed the developers to collect login credentials for Facebook, Gmail, and other accounts...

Existing home sales hit a 6-month low

In another sign that the housing market (and broader economy) are weakening, existing home sales hit the lowest level since November:

Whoa. Sales of previously occupied homes in the U.S. fell in May to the lowest level in six months, the National Association of Realtors reports. That’s not good news, given we’re all waiting for the long-awaited recovery to finally arrive.

Sales of existing homes fell 3.8% from a month earlier to a seasonally adjusted annual rate of 4.81 million. As we report, it was the weakest showing since November. To be sure, unusually weak weather hurt sales. But housing’s pain will persist until the employment market and housing prices stabilize.

For now, prices continue falling: The median sales price was $166,500, down 4.6% from $174,600 a year earlier. The inventory of homes listed for sale, meanwhile, slipped slightly at the end of May to 3.72 million, representing a 9.3-month supply. A healthy market has a roughly six-month supply.

Sorry about the lack of blogging over the past week. I've been busy building a new feature for my website. I expect it will be ready to go live by July 1st and I will announce it here on my blog.

You're a sucker if you pay your mortgage

It takes a year-and-a-half to foreclose on a delinquent homeowner:

Some 4.2 million mortgage borrowers are either seriously delinquent or have had their cases referred to lawyers to pursue foreclosure auctions, according to LPS Applied Analytics. Of those, two-thirds have made no payments at all for at least a year, and nearly one-third have gone more than two years.

These cases can go on and on. Nationwide, it takes an average of 565 days to foreclose on borrowers in default from their first missed payments to the final auction. In New York, the average is 800 days and in Florida, where the "robo-signing" issue is particularly combative, it's 807.

If they want to fight evictions hard, borrowers can remain in their homes even longer while their cases are being worked through.

Apparently, the housing bubble was a one-way bet for some home buyers. If prices went up forever, they got rich. If prices fell, they got to live rent-free for 18 months.

NAHB chief economist pessimistic on housing

As I've said before, the National Association of Home Builders (NAHB) economists are far more honest than the National Association of Realtors (NAR) economists:

Even the National Association of Home Builders’ top economist is sounding a bit gloomy these days.

David Crowe, the trade group’s chief economist has lowered his forecast for home construction this year. ...

In an interview, Mr. Crowe said the start of the year was “much worse than I expected,” noting that overall economic growth was weak, the labor market grew less than forecast and consumer confidence hasn’t picked up. High gasoline prices, he said, are “just a joy-killer” that makes consumers less interested in purchasing a new home.

Shiller: Up to 25% further drop in housing prices possible

From CNN Money:

In an off-hand remark before cameras and microphones, economist and housing market guru Robert Shiller opined earlier this year that he would not be shocked if there was another 10% to 25% in the nation's home price plunge — and he's not backing down from that statement.

At a S&P Housing Summit in New York, Shiller on Thursday reiterated his fears of falling home prices. It's not a forecast, he said, just a comment on his understanding of housing market trends.

He explained that speculative markets, like stocks or commodities, act like random walks. They go up and down all the time. Housing market direction tends to be more consistent.

"I worry that this is a real and continuing downturn, like in Japan," Shiller said. "It had a boom in the 1980s that peaked in 1991. Prices declined in the major cities for 15 straight years after that."

Shadow Stats debunked, part II

The Shadow Stats cultists who believe the U.S. Bureau of Labor Statistics is manipulating the inflation numbers have more evidence against them. MIT's Billion Prices Project collects prices completely independently of the BLS, yet it comes up with essentially the same U.S. inflation rate. This graph shows less than a percentage difference after almost three years:

And let's not forget that back in October, Google chief economist Hal Varian reported that Google's inflation measure, the Google Price Index, measured deflation during 2010:

While the Federal Reserve is unlikely to panic just yet, Mr Varian said that the GPI shows a “very clear deflationary trend” for web-traded goods in the US since Christmas. ...

Mr Varian emphasized that the GPI is not a direct replacement for the CPI because the mix of goods that are sold on the web is different to the mix in the wider economy. Housing accounts for about 40 percent of the US CPI, for example, but only 18 percent of the GPI.

The GPI shows a “pretty good correlation” with the CPI for goods such as cameras and watches that are often sold on the web, but less so for others, such as car parts, that are infrequently traded online.

So, the Billion Prices Project is largely in agreement with the CPI—varying by only a fraction of a percent per year—while Google reports even lower inflation numbers than the BLS.

Now ask yourself, which is more likely?

1. Three very different institutions—the BLS, MIT, and Google—are all conspiring to mislead the public
2. One guy—John Williams—is making a living by taking advantage of suckers

I'll give you a hint. Many Shadow Stats followers think the CPI doesn't count food and energy, even though it does. (It's a different measure, core CPI, that ignores food and energy.) Ignorant people are easily scammed.

For further evidence that Shadow Stats is a fraud, read Shadow Stats debunked, part I.

Graph: The real 30-year mortgage rate since 1971

The above graph shows the real (inflation-adjusted) 30-year conventional mortgage interest rate since 1971.

Government confirms weak job market

As a follow up to yesterday's blog post about the interdependency between employment and housing, today's government employment data confirms a weakening job market:

After several months of strong job growth, hiring slowed sharply in May, raising concerns once again about the underlying strength of the economic recovery.

The Labor Department reported on Friday that the United States added 54,000 nonfarm payroll jobs last month, following an increase of 232,000 jobs in April. May’s job gain was about a third of what economists had been forecasting.

The unemployment rate ticked up to 9.1 percent from 9.0 percent in April.

A recovering economy is dependent on a recovering housing market, and vice versa

The economy and the real estate market are caught in a Catch-22 situation:

Home prices won't rebound until jobs come back. But jobs won't come back until the housing mess gets fixed.

That's a problem because both the housing market and the broader economy are having trouble getting back in gear. Hiring is losing steam, and after home values hit a post-boom low, many are projecting further price declines.

"The economy can move forward without housing," said Mark Zandi, chief economist with Moody's Analytics. "But I don't think it can flourish and create enough jobs to bring down unemployment in a significant way without a revival of the housing market." ...

Housing typically helps lead the way in an economic recovery not only through a surge of construction and the hiring that goes with it, but though demand for goods and services that go into forming a new household. ...

Doug Duncan, chief economist of mortgage finance giant Fannie Mae, is focused on the impact of jobs on housing — and vice versa.

"Our mantra all along has been employment, employment, employment," Duncan said. "Until you see employment growth and then income growth and then household formation, you don't get to the bottom of this." ...

On Wednesday, payroll processor ADP reported that hiring by businesses ground to a halt in May, raising concerns about the recovery in employment.

Here's more on the weak job market:

"The ADP Employment report coughed up a hairball in May," Robert Dye, senior economist with the PNC Financial Services Group, said in a research note, referring to a report by payroll processing company ADP released Wednesday.

That report showed private sector employers added only 38,000 workers in May, far lower than the revised 177,000 jobs added in April and much weaker than economists had expected.

That level of job growth is the weakest number since September. ...

The ADP report followed on the heels of an already disappointing jobs number released by outplacement consulting firm Challenger, Gray & Christmas on Wednesday morning.

According to that report, the pace of planned job cuts edged higher in May, as 37,135 jobs went on the chopping block — a 1.8% increase from April's planned job cuts.

But government sector layoff announcements dominating those numbers.