S&P/Case-Shiller housing indices keep falling

From the press-release:

Data through January 2011, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show further deceleration in the annual growth rates in 13 of the 20 MSAs and the 10- and 20-City Composites compared to the December 2010 report. The 10-City Composite was down 2.0% and the 20-City Composite fell 3.1% from their January 2010 levels. San Diego and Washington D.C. were the only two markets to record positive year-over-year changes. However, San Diego was up a scant 0.1%, while Washington DC posted a healthier +3.6% annual growth rate. The same 11 cities that had posted recent index level lows in December 2010, posted new lows in January. ...

“Keeping with the trends set in late 2010, January brings us weakening home prices with no real hope in sight for the near future” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. “With this month’s data, we find the same 11 MSAs posting new recent index lows. The 10-City and 20-City Composites continue to decline month-over-month and have posted monthly declines for six consecutive months now.

“These data confirm what we have seen with recent housing starts and sales reports. The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.

Shadow Stats debunked, part I

As a follow-up to last week's post on the subject, here are U.S. housing prices discounted by the "untrustworthy" U.S. government measure of inflation (the CPI-U-Research Series, to be specific). Note the fairly obvious housing bubble that begins to form in 1998.

I have reproduced Shadow Stats' proprietary annual inflation numbers. Here's what historical housing prices look like when discounted by the Shadow Stats SGS Alternate (1980) measure of inflation:

When housing prices outpace inflation, real (i.e. inflation-adjusted) home prices rise. When inflation outpaces housing prices, real home prices fall. Shadow Stats claims some pretty high inflation numbers, so it's hard for housing prices to keep up—even in good times. That's why we see the long-term decline in real housing prices shown in the second graph.

Now you can believe there was a housing bubble, or you can believe that Shadow Stats is trustworthy, but if you believe both you're delusional.

Update: For more on this topic, see Shadow Stats debunked, part II.

The top car makers

The April 2011 issue of Consumer Reports ranks the big car makers based on overall quality. Here's the ranking, from best to worst:

1. Honda (Japan)
   
2. Subaru (Japan)
3. Toyota (Japan)
4. Volvo (Sweden)
   
5. Ford (USA)
   
6. Hyundai (South Korea)
   
7. Mazda (Japan)
8. Nissan (Japan)
9. Volkswagen (Germany)
   
10. Mercedes-Benz (Germany)
11. BMW (Germany)
12. General Motors (USA)
13. Chrysler (USA)

Some interesting observations from the list. First, East Asian (Japanese and Korean) automakers continue to do best as they have for decades. Second, if you want to buy American, buy a Ford. Third, with the exception of Ford and Volvo, American and European cars kinda suck—even the pricey ones.

Yes, the minimum wage causes unemployment

Some math from the Political Calculations blog:

In terms of jobs lost, that means that 2,234,383 of the jobs lost in the U.S. economy since 2006 have been jobs that were directly impacted by the series of minimum wage increases that were mandated by the federal government in 2007, 2008 and 2009.

Interestingly, the average number of employed members of the civilian labor force in 2006 was 144,427,000. In 2010, the average number of employed members of the civilian labor force in the U.S. was 5,363,000 less, standing at 139,064,000.

So, in percentage terms of the change in total employment level from 2006 to 2010, jobs affected by the federal minimum wage hikes of 2007, 2008 and 2009 account for 41.8% of the total reduction in jobs seen since 2006.

There never was a housing bubble!

For five years, I have been trying to publicly warn people about the housing bubble. Unfortunately, I was wrong all along. There never was a housing bubble. I apologize for the error.

You might think I'm being sarcastic, but I'm not. You see, the belief in a housing bubble rests on housing prices substantially outpacing inflation. If housing prices don't outpace inflation, there can be no bubble. I foolishly assumed that I could trust the inflation numbers published by the U.S. Bureau of Labor Statistics. I have been informed that doing so is pure ignorance.

I admit was wrong. The army of economists crunching the inflation numbers at the BLS are just tools of a corrupt and wicked government. The true inflation numbers come from a guy with no graduate degree in economics who is chief economist at the Shadow Stats website. He sells the true numbers for $175 per year. You know he's not a snake oil salesman or a con artist because he tells you what you already believe. Con artists would never do that. This guy says the government is under-reporting the real inflation numbers. The real inflation numbers are much higher, and have been for decades.

If the true inflation numbers are much higher, then inflation-adjusted housing prices must therefore be much lower. It's a simple rule: higher inflation = lower inflation-adjusted housing prices = much smaller or non-existent housing bubble.

For example, in 2001 when I first spotted what I thought was a housing bubble (silly me), nominal home prices had increased about 8.5% from the year before. But, according to Shadow Stats, inflation was 9.1%. Real home prices actually fell 0.6% that year! What a fool I was for thinking housing prices were rising too fast. They were actually falling!

If the Shadow Stats inflation numbers are right, then home prices must now be deeply undervalued. I say buy, buy, buy!

Almost 1 in 5 Florida homes are empty

It looks like Florida won't have a housing recovery any time soon:

On Thursday, the Census Bureau revealed that 18% — or 1.6 million — of the Sunshine State's homes are sitting vacant. That's a rise of more than 63% over the past 10 years.

Having this amount of oversupply on the market will keep home prices depressed and slow any recovery.

During the housing boom, Florida was among the hottest real estate markets in the nation. Homes were snapped up by the state's growing population as well as hordes of investors confident that prices would continue to soar.

Meanwhile, the number of real estate licenses issued in Florida fell by 75% since 2005:

In the past six years, real estate licenses issued in Florida have fallen dramatically, from almost 47,000 in 2005 to 11,700 in 2010, according to the Florida Department of Business & Professional Regulation.

Zillow ZHVI vs S&P/Case-Shiller HPI

Here is a comparison of the Zillow Home Value Index vs. the S&P/Case-Shiller National Home Price Index since February 1996. Zillow is blue; Case-Shiller is red.

The S&P/Case-Shiller index is a constant-quality index. Zillow's ZHVI is not. In order to compare apples to apples, I had to convert the ZHVI into a constant-quality index. I did so by graphing the ZHVI value per square foot. This way, the index is not distorted by changing home sizes.

Click the image to see a full-size version.

United States Home Values

In this graph, I think the ZHVI does a better job of showing where prices are headed.

Why the discrepancy between Zillow and Case-Shiller? I think the Case-Shiller index is distorted by foreclosures and potential home sellers keeping their homes off the market. The ZHVI ignores foreclosures. A given home is worth a lower sales price in foreclosure than in a regular sale, because the buyer takes a greater risk in a foreclosure sale and because the seller is a motivated seller. This means a foreclosure sales price is not a good estimate of a home's true value. The ZHVI also estimates home values not sales prices. This way, the index is not distorted by people who would like to sell their home but choose not to because of the declining market.

My U.S. housing bubble graphs use Freddie Mac's CMHPI for the 1970-1974 period, the FHFA HPI for the 1975-1986 period, and the S&P/Case-Shiller national HPI from 1987 to present. I am considering replacing the 1996-present period with the ZHVI. The goal is to use the most accurate data available for any given period.

Note: The numbers on the graph's y-axis are just index values, not dollar values.

Presidential Job Creation

I ran across this old blog post about presidential job creation by Paul Krugman and I thought it was time for an update. We all know that politicians are the ones who create jobs in America, right? Right?!

Well, here is a graph of job creation under four presidential administrations (with Reagan/Bush counted as one to make the graph easier to read).

Click on the graph to see a full-sized version.

Obama - solid blue
Bush, Jr. - solid red
Clinton - speckled blue
Reagan/Bush - speckled red

It's a good thing Barack Obama is saving jobs, because he sure isn't creating them!

In all seriousness, Americans drastically overestimate the influence presidents have on the economy. However, people who are inclined to view everything through a political lens will mistakenly think this graph has actual meaning.

The left has been consistently wrong on foreclosures

The Irvine Housing Blog gets political:

The political left has consistently been wrong on the foreclosure issue. There is a populist issue for the left to embrace: affordability. Instead, they are choosing to pander to distressed homeowners. The robo-signer scandal only gained traction because the political left kept pandering to the false belief that people were wrongly foreclosed upon. ...

Responsible homeowners are not losing their homes. And while we are all shedding tears for unemployed homeowners, what about unemployed renters? ... If we are going to subsidize loan owners with squatting privileges, why don't we do the same for renters? Where is the renter's Bill of Rights (and free handouts)? In my opinion, the political left would be wiser to pander to renters and side with affordability advocates, traditional supporters of the left.

I think the left's pandering to distressed homeowners comes from its innate tendency to view people as victims.

The housing bubble and the trade deficit

Many people don't realize that the housing bubble was actually an international phenomenon. Many countries around the world experienced rapidly rising home prices at the same time as the U.S.

The graph below from VoxEU shows the correlation between home price appreciation and current account deficits/surpluses during the bubble. You can think of current account deficits/surpluses as essentially trade deficits/surpluses. Here's the definition from Wikipedia:

The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

This graph shows that countries with current account deficits tended to have rapid home price appreciation. Countries with current account surpluses tended to have slower home price appreciation.

Why does this matter? Well, the opposite of the current account is the capital account, which is essentially incoming foreign investment. The current account minus the capital account should add up to zero. This graph supports Ben Bernanke's hypothesis that the housing bubble was caused in large part by a global savings glut. Massive savings in China and oil producing countries flowed to the West in the form of financial investment. This financial investment encouraged mortgage lending, which then pushed up real estate prices.

The VoxEU article sums up its analysis as follows:

These results suggest that persistent capital inflows, coupled with securitisation, played a significant role in the housing booms observed in some countries in the run-up to the financial crisis.