# Case-Shiller: Second Derivative Gains Rapidly Evaporating

Before we put away the May Case-Shiller data, let’s have a look at my favorite alternative Case-Shiller charts.

First up, let’s take a look at the twenty-city month-over-month scorecard. Here’s the original post introducing this chart if you’d like more details. Click the image below for a super-wide version with the data back through 2000.

April and May both saw all twenty cities experiencing month-over-month gains, a feat that has not been accomplished since 2005.

But everything is not necessarily coming up roses… here’s a look at the number of cities that are experiencing second derivative Case-Shiller gains or losses.

The number of cities experiencing second derivative gains dropped like a rock in May. I consider the second derivative to be a leading indicator of price trends, so a sudden drop in this measure is something to keep an eye on for sure. If this trend keeps up I expect we’ll see prices flat-line by the end of the year.

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

1. 1
Erik says:

y = csi price (position)
dy/dx is change in csi price (velocity)
d^2y/dx^2 = rate of change in csi (acceleration)

“I consider the second derivative to be a leading indicator of price trends”

By definition it is the indicator of price trends since it is the rate of change in CSI.

2. 2
Blake says:

Deceleration… very interesting. Thx Tim!
Also: Isn’t the effect of the interest spike on housing supposed to lag by about 6 months. So that might not hit til the Fall? Should be an intersting end of the year…

3. 3
Dave0 says:

Prices are still increasing, the year over year change (velocity) is still positive and increasing, and acceleration is positive but decreasing (in Seattle that is). This is most likely a result of increasing inventory giving buying more selection, and less reason to panic. Looks to me like we’re getting settled in to hit cruise-control on a stable market. Sounds good to me.

4. 4
Matthew says:

All of this before the rate surge.

The top is in.

5. 5
Saulac says:

From the Tim’s post:
“If this trend keeps up I expect we’ll see prices flat-line by the end of the year.”

Thanks Tim.
Clear simple predictions like this are what make SB special. Thanks for sticking your neck out and make predictions. So many “experts” simply not predicting any more out of concern of being wrong…I think most people here appriciate your predictions and would not held it againts you if they miss the mark from time to time…:)
BTW, I can’t seem to figure out how to make quote from the Tim’s post. Quoting comments is very simple.

6. 6
Mike says:

I expect the price moderation to differ substantially by market. Just like during the bubble, some markets surged while others were already in a steep decline.

Likewise, some markets already had substantial normalizing post bubble price increases, and others are a few months or years behind.

7. 7
Matt B says:

Sorry Tim, predicting a flat line is an overreaction. At double-digit YOY appreciation in many markets, the last thing we want to see is continued acceleration – that is the definition of a bubble. My prediction is that the 2nd derivative will go briefly negative but eventually settle around zero: steady, boring growth, but not a flat line.

8. 8
Lo Ball Jones says:

Looks like the drip will soon turn into a trickle.

Tacoma, again:

1021 S Ferry St Tacoma, WA 98405
\$89,950

http://www.redfin.com/WA/Tacoma/1021-S-Ferry-St-98405/home/2988961

Now everyone will say “driveby”. But really look at the pictures of the interior! If this is what a gangbanger lives in then he has the same taste as a couple of tofu munchers up near Greenlake? And at 1/5th cost? Do hardwood floors go well with gatts?

Trying to make some sense of it all.
But I can see it makes no sense at all.

9. 9
grandrobyn says:

RE: Erik @ 1
That really helps me understand this stuff. Having a strong math foundation helps you interpret this data more clearly. I rem remember this stuff from calculus based physics. The people that gave you thumbs down weren’t capable of understanding. Thanks for the concise definitions.

10. 10
whatsmyname says:

Matthew, Too bad I had my 5 comments already in. I would hate to think you might miss my answer. Also, worth noting that it was Kary who added the intelligent idea of the mix being important to the median price. Were you one of those who jeered at that, and then later embraced it?

RE: Matthew
August 3, 2013 at 9:28 pm | Permalink

I will type very slowly and use small words so cornholed and troll can understand.

Thanks. Here’s a small word for you: “fallacy”

The ad hominem was not an attack but merely a reply to whatsmyname’s screename. He wants to know what his name is so I have given him one fitting of his SB persona. What else do you call a person that never really adds to the discussion and just attempts to flame everyone else and belittle everyone’s points? I’ve never seen him add anything intelligent to The Tims posts. Very Kary like.”

Ad hominem is by definition attack, but the key here is that it is fallacious argument. Also, your first sentence is contradicted by the entirely of your remaining paragraph, so that is just simple and obvious misrepresentation. I take it that you are just clever enough to fool yourself.

Iâ��m not advocating a return to a gold standard. I was merely pointing out that the difference between Fed intervention now and Fed intervention during the Great Depression is that we now have a fiat currency.”

In that event, this is a beside the point argument. In any event you failed to defend your original argument with except by fallacious reasoning. If you had something, why not bring it.

Having a fiat currency gives the Fed far greater flexibility to expand its balance sheet. In the right hands this is a usefull tool. Put in the wrong hands or used recklessly, it creates bubbles.”

Not the point, and unsupported speculation. I hope you are not hinting that there weren’t bubbles before fiat currency.

The reason we got out of the Great Depression had nothing to do with the New Deal. It had to do with the fact that deflation finally ran its course and inflated asset values corrected to the levels they should have been in the first place. This coupled with increased manufacturing from ww2 finally got us to turn the corner. FDRs policies were a well documented failure.”

There was a documented dip as FDR pulled back on the stimulus. You should be aware that WW2 was massive government deficit spending. 30’s deflation running its course is an idea that is not recognized in real schools. Did that come out of your butt?

Look at new construction and the home builders stocks. They have been getting crushed. That is a definite tell. Builder stocks leas the way.

Builders are flush with cash, but running out of buildable lots.

Rates have risen and are putting pressure on the middle and upper tier. How long do you think Blackrock and the other Wall St. big boys are going to keep their homes without liquidating them once they smell the winds of change?”

The hedge funds are securitizing the rental streams. They get out (or nearly out) with a big return; the conduits are contracted to make payments from rent. Those houses aren’t coming your way anytime soon. Funds never get into this type of thing for a long term hold. They are not a factor in the Seattle market anyway.

11. 11
Matthew says:

You are going to lecture me about fallacies/logic when you just violated the rules of this blog and thread jumped an argument from another thread because you ran out of posts. LOL. You just proved my point, how very Kary of you.

Builders are running out of land, hedge funds aren’t a factor in The Seattle market, etc. It’s like I’m in a time warp back to 2006. Same old tired points that have been address countless times before on this blog throughout the years. But wait, you weren’t around then were you Kary Jr?

12. 12
whatsmyname says:

By Matthew @ 11:

You are going to lecture me about fallacies/logic when you just violated the rules of this blog and thread jumped an argument from another thread because you ran out of posts. LOL. You just proved my point, how very Kary of you.

Are you saying thread jumping is a violation of logical argumentation?
Are you not right here with me?
Did you post a cornucopia of nonsense on the other thread in the hope that it couldn’t be answered?

Builders are running out of land, hedge funds aren’t a factor in The Seattle market, etc. It’s like I’m in a time warp back to 2006. Same old tired points that have been address countless times before on this blog throughout the years. But wait, you weren’t around then were you Kary Jr?

Developed lots are much different than land (by a couple of years). There was an overhang of lots in 2006. The hedge fund issue today is in the houses they have moved into the rental market. That wasn’t even imagined in 2006. It’s getting more and more difficult to tell whether you are arguing from ignorance or dishonesty.

13. 13
Erik says:

RE: grandrobyn @ 9
Why thank you grandrobyn. I will continue.