Decline In Case-Shiller Home PriceIndex Eases

S&P/Case-Shiller Home Price Composite Index of twenty metro-markets slipped just 0.9% during April versus March. The latest monthly decline was the smallest since late 2007; however, it still left prices 18.1% lower during the last twelve months and down by nearly one-third since their peak in May 2006. The April decline in prices was less than the expected 18.9% y/y drop.

The series dates back only to 2001. The S&P/Case-Shiller home price series can be found in Haver's USECON database and the city data highlighted below is in the REGIONAL database.

The Case-Shiller index of 20 U.S. cities and their surrounding areas is weighted to reflect price changes due to extensive remodeling, home additions or extreme neglect.  For example, smaller weights are assigned to sales of homes that have undergone extensive remodeling.

The Case-Shiller composite index of homes in 10 metropolitan areas, which has a longer history and dates back to 1987, also fell a lessened 1.0% and was down 18.0% year-to-year. The measure also was down by nearly one-third since the 2006 peak.· Less Weak Regions:  In Cleveland, Ohio prices ticked up slightly m/m (-10.5% y/y) and in Dallas prices rose slightly as well (5.0% y/y). Prices also rose 0.7% in Denver (-4.9% y/y). In addition, in Boston the monthly decline in prices moderated substantially (-7.7% y/y) and in Chicago home prices were roughly unchanged m/m (-18.7% y/y).  In New York, the price decline showed little moderation (12.5% y/y), off roughly 20% from their 2006 peak. In Charlotte, North Carolina prices also continued down moderately (10.0% y/y.

Weakest Regions: Home prices in Phoenix, Nevada were quite weak and fell 35.3% y/y and in San Francisco prices fell a lessened 28.0% y/y. However, they still were off by nearly one-half from their early-2006 peak. Home prices in Las Vegas, Nevada continued their rapid rate of decline, 32.1% y/y, and also were down by roughly one half from their peak. The rate of price decline in Miami eased slightly (27.3% y/y while home prices in Los Angeles continued to fall sharply 21.2% y/y. In Tampa, the rate of monthly price decline slowed slightly (-21.3% y/y). In Detroit, the monthly rate of price decline also eased considerably (-25.4% y/y) but was off by early one-half from the peak.

Here is a link to the latest press release from Standard & Poor's. An overview of the S&P/Case-Shiller home price series can be found here.

The history of the Case-Shiller data is available in Haver's USECON database.

‘Official’ train wreck?? Maybe I shouldn’t say ‘officially’ since no one in officialdom has really declared it so. And I don’t want those with policies at Lloyds to come running for remuneration because they are insured against injury inflicted by a train gone amok. Still, the sharp downward revision to UK GDP is stunning and it gives us a new take on reality.

Capital spending takes a dive – If capital spending were a prize-fighter, the boxing officials would be streaming in for an investigation of such a sudden dive. UK capital spending in Q1 ‘did in’ an already weak UK GDP showing in 2009-Q1 by falling at an even steeper 27% annual rate. The annualized drop in UK GDP as a result has sunk back to near double digit losses, showing a decline of at a pace of 9.3% compared to -7.3% as last reported. And, yeah, they are both bad numbers, but 9.3% is simply awful.

Bigger than a pot-hole: The GDP hole that the UK must dig itself out of is deeper than we thought. And in this, the UK is not alone. Not seasonally adjusted Irish GDP was revised lower in Q1 to an annual rate drop of 8.5% from 7.5% previously. Excluding its key international sector, Ireland’s GDP fell 12% in Q1. Downward revisions have been an ongoing theme…

Yes we have no INFLATION!!! (for now) -- These sorts of downward revisions business activity help to explain some of the other ‘news du jour’ such as the lowest inflation rate in 40 years in Italy (+0.5% Yr/Yr in June); the first-time-ever drop in the EMU CPI (-0.1% in the twelve months ended in June); and, the lowest inflation reading in at least 38 years for the OECD area (+0.1% Yr/Yr in May).

Let’s do the twist...or let’s not -- There has been some great twisting of inflation trends recently. As short a time ago as July of 2008 OECD inflation had reached an 11-year high at 4.9% Yr/Yr; the plunge in the rate of inflation has a lot to do with the global credit crisis and the deflating of the individual OECD economies as well as the global economy. To the extent we may wish to consider it a separate event, it also has to do with oil prices falling. Energy prices in the OECD fell by 16.2% in the 12 months to May obviously having a lot to do with the drop in that headline inflation rate. That which twists can untwist…

The GDP-Gap trap - These huge hits to GDP are behind us. The legacy of those hits is something economists call the GDP-Gap. The Gap is the difference between where GDP is currently compared to where it could have been had the economy grown at its ‘full-potential’. You get a good simple approximation of this by just extending GDP’s growth trend before the economy slowed and fell and looking at the resulting gap of that extrapolated line Vs actual GDP. That gap will persist for some time into the future even if the economy grows swiftly for several quarters.

The plot thickens - While no one expects declines of the past order of magnitude to continue going forward, there is considerable debate about the speed of the individual economies and of the global economy. The turning point location for GDP growth rates to become positive and the pace at which growth will proceed once that happens are critical ingredients in the outlook for inflation.

Risk source: Gap trap Vs central bankers at nap - To Keynesian types these issues are the key; to others ‘the Gap’ is still an issue that matters but monetarists look for the impact on inflation to come from all the special reserve injections by various central banks.

Market pricing, or groping - So the stage is set. We can expect these issues to continue to be contentious as the recession slows and recoveries re-start. Stock markets have rebounded less on the expectation of strong GDP recovery growth rates and more on the notion that huge drops in GDP are behind us and the companion thought that at least some growth lies ahead. Bonds have been battered back by those with fears of inflation from central-bank reserve growth and the notion that the special times for distress pricing and the flight to quality are behind us.

Markets will continue to toss and turn on these issues. Some will revel in the existence of the GDP-Gap as a protector against inflation. Others will dismiss it or diminish it. It is the wave of the future.

According to the Conference Board, consumer confidence slipped this month following gains during the prior three months. The slip did not, however, alter the picture of improvement in consumer attitudes. Confidence remained up by more than one-half from the February low and roughly equal to the year ago level. The Conference Board data can be found in Haver's CBDB database.

During the last ten years there has been an 86% correlation between the level of consumer confidence and the y/y change in real consumer spending.

The expectations component of confidence slipped the most last month with an 8.4% decline following three strong monthly increases. Still, the index remained near the highest level since late 2007. The percentage of respondents expecting business conditions to improve slipped to 21.2% but that remained near the highest level since 2004. A much reduced 20.2% expected conditions to worsen. That improvement was expected by 17.4 of respondents to generate more jobs, more than double the percentage at the recent low.

Consumers' assessment of the current economic conditions also slipped m/m and remained near its recent low. It remained off by nearly two-thirds from a year earlier. Jobs were seen as hard to get by a still-high 44.8% of respondents and jobs were seen as plentiful by only 4.5% of respondents. Business conditions were seen as good by just 8.0% and that was near the 1991 low. Consumers who thought business conditions were bad rose slightly to 45.6%, still near the highest since 1983.

Expectations for the inflation rate in twelve months have been roughly stable at 5.9%. That's down from last year's high of 7.7%. Expectations about interest rates have increased sharply with 51.7% of respondents expecting higher rates while 16.3% expect rates to fall. A greatly increased 31.5% of respondents expected stock prices to rise.