Case-Shiller: Seattle Prices Headed South for Winter

Let’s have a look at the latest data from the Case-Shiller Home Price Index. According to December data,

Down 0.7% November to December.
Up 0.2% November to December (seasonally adjusted).
Down 7.9% YOY.
Down 23.3% from the July 2007 peak

Last year prices fell 3.6% from November to December (not seasonally adjusted) and year-over-year prices were down 13.4%.

Here’s our offset graph, with L.A. & San Diego time-shifted from Seattle & Portland by 17 months. San Diego was above zero again, while LA was right at zero. Portland came in at -5.4%, Los Angeles at 0.0%, and San Diego at +2.7%, all better than Seattle.

Case-Shiller HPI: West Coast

Note: This graph is not intended to be predictive. It is for entertainment purposes only.

Here’s an interactive graph of all twenty Case-Shiller-tracked cities, courtesy of Tableau Software (check and un-check the boxes on the right):

Also in positive YOY territory: San Francisco, Denver, DC, Boston, and Dallas.

In December, fourteen of the twenty Case-Shiller-tracked cities experienced smaller year-over-year drops (or saw year-over-year increases) than Seattle (same as August through November). San Francisco at +4.8, Dallas at +2.9%, Denver at +0.5%, San Diego at +2.7%, Washington, DC at +1.9%, Boston at +0.5%, Los Angeles at 0.0%, Cleveland at -1.2%, Minneapolis at -2.3%, Charlotte at -3.8%, Atlanta at -4.0%, Portland at -5.4%, New York at -6.3%, and Chicago at -7.2%.

The only other cities still experiencing larger year-over-year declines than Seattle are Phoenix, Miami, Detroit, Tampa, and Las Vegas.

Because I can, here’s an interactive chart of the raw HPI for all twenty cities through December.

Here’s an update to the peak-decline graph, inspired by a graph created by reader CrystalBall. This chart takes the twelve cities whose peak index was greater than 175, and tracks how far they have fallen so far from their peak. The horizontal axis shows the total number of months since each individual city peaked.

Case-Shiller HPI: Decline From Peak

In the twenty-eight months since the price peak in Seattle prices have declined 23.3%, another new post-peak low.

Here’s a complementary chart to that last one. This one shows the total change in the index since March for the same twelve markets as the peak decline chart.

Case-Shiller HPI: Bounce Since March 2009

Not all markets are bouncing equally.

The following chart takes the post-bubble years of 2007, 2008, and 2009 and indexes each January’s Case-Shiller HPI to 100 so we can get a picture of how this year’s declines compare to last year:

Post-Bubble Seattle Case-Shiller HPI by Year

Almost the entire difference in this year’s performance came in the last four months of the year.

Check back tomorrow for a post on the Case-Shiller data for Seattle’s price tiers.

(Home Price Indices, Standard & Poor’s, 02.23.2010)

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About The Tim

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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

104 comments:

  1. 1
    The Tim says:

    FYI, the Case-Shiller website is having issues this morning, and I have been as of yet unable to obtain the seasonally-adjusted data. When I am able to get that, I will update the summary with it.

  2. 2
    Ray Pepper says:

    Listening to Schiller at 6am this morning on CNBC his tone was very bearish and he even admits he has no idea where we are going from here. As we already know we have been propped up by Fed Stimulus and he suggests this is the most abnormal market he has ever seen in his life. He fears a double dip and suggests housing markets may drop substantially without FED.

    http://www.cnbc.com/id/15840232?video=1422332916&play=1

    Aaron Burnett is so cute at the beginning I tend to forget what we were talking about.

  3. 3
    patient says:

    So last summer’s flattening was a false bottom, what a surprise… An illusion created by easy money (again ) that is already fading. Brace yourselves for the next leg down of prices or alternatively the next spectacular robbery of the tax payer by the rich and irresponsible.

  4. 4
    David Losh says:

    Why is the head line this morning that Case Schiller shows: .”Home prices rise 0.3 percent in December”

    This is one of the fears I have about having the Case Schiller “Index,” It’s another way to spin the data. This particular article says the home price rise is helping to stabalize the housing market and adding to consumer confidence.

  5. 5

    RE: David Losh @ 4 – Spin can happen with any statistics. My favorite was a couple of years ago when the King County SFR median was up, the King County Condo median was up, but Elizabeth Rhodes in the Times reported that the King County median was down because the combined median was down. The combined median was down because the percentage of condos sold had increased, and condos generally have lower selling prices.

  6. 6
    The Tim says:

    RE: David Losh @ 4 – The seasonally-adjusted 10 and 20-city indices were up slightly month-over-month. I personally am not really sold on the seasonally-adjusted data having much value. Some markets seem to show some seasonality in their Case-Shiller HPI (e.g. – Boston), but others seem to have no seasonal elements at all.

  7. 7
    The Tim says:

    Bloomberg headline: Home Prices in 20 U.S. Cities Rose for Seventh Month

    Home prices in 20 U.S. cities rose in December for a seventh consecutive month, indicating the industry at the heart of the worst recession since the 1930s is stabilizing.

    November to December month-to-month change in reality:

    They’re taking the 20-city composite, seasonally-adjusted number, and writing their article to make it appear as though home prices are rising in all twenty cities tracked by Case-Shiller. In reality, home prices fell in 15 of 20 cities, as did the composite index. “Seasonal adjustments” led to an increase in the index, but the claim that “home prices rose” is flatly false for all but 4 cities.

    Pitiful.

  8. 8
    Jason says:

    Why do you say that your graph is “not intended to be predictive” when your headline is “Seattle Prices Headed South for Winter”? Where do your predictions come from, then?

  9. 9
    The Tim says:

    RE: Jason @ 8 – The headline is descriptive. December is a winter month, and home prices in Seattle as measured by the Case-Shiller index are falling, or “headed south.”

  10. 10

    Imagine How Cheap Newer Used Cars Would Be

    If all the stored inventory [look across from the Kent Boeing plant parking lot on W. Valley to see thousands of newer cars stored] were sold at dealers all at once…LOL

    Of course, eventually they are sold for what the bearish market will bear; and if they’re stored long enough, for vulture bargains too.

    I’m sure housing prices are propped up temporarily the same way [by keeping inventory artificially low], as are small planes for sale too…the banks hold on to them as long as they can, hoping prices will go back to normal [they’ve ranted for the last year that we’ve bottomed out of the recession, no jobs or consumer confidence yet, but that’s just a lagging indicator….LOL]….brainless wishful thinking in my book, ask Buffett what wishful thinking in investments means….LOL

    What goes around, comes around. Eventually the ghost inventories of cars, planes and houses will be proven by ghost hunters’ evidence….just like the massive ghost unemployment will be added in to the real unemployment rate again, like it was in the Great Depression. Then reality will set in on price collapses and you’ll wish you waited to buy.

  11. 11

    By The Tim @ 6:

    RE: David Losh @ 4 – The seasonally-adjusted 10 and 20-city indices were up slightly month-over-month. I personally am not really sold on the seasonally-adjusted data having much value. Some markets seem to show some seasonality in their Case-Shiller HPI (e.g. – Boston), but others seem to have no seasonal elements at all.

    I’m suspect of any seasonally adjusted data, including areas outside of real estate like unemployment numbers. It just adds another black box to the numbers.

  12. 12
    The Danza says:

    RE: Jason @ 8 – “Heading” south would be predictive, “Headed” south seems to be past tense.

  13. 13
    Steve Tytler says:

    Tim,

    Awesome job on the charts as usual!

    To me, this illustrates what I’ve been saying for years … Seattle is NOT a “boom and bust” real estate market, never has been … for real fun add Las Vegas and Phoenix to the YOY change chart above. Talk about a roller coaster ride!

    By comparison, Seattle’s “bubble” has been relatively mild. The housing market is really picking up this year … most of the real estate agents I talk to are very busy. I wouldn’t be surprised to see home prices “bottom out” sometime this year but I DON’T expect a big bounce back up as we have seen in the some of the extreme “boom/bust” markets like Los Angeles and San Diego. I think the market will continue to “flatten out” as in the last few months of your “Total Decline from Peak” chart above. In other words, very little depreciation (or appreciation) over the rest of this year and probably for the next few years as well.

    Remember, there is really no “Seattle housing market.” Housing values vary dramatically from city to city and neighborhood to neighborhood. There will be some neighborhoods in the Puget Sound region that will boom during the next couple years and some will bust, but the overall “average” of home prices in the region will be relatively flat.

  14. 14
    AMS says:

    RE: Kary L. Krismer @ 5 – A great example of Simpson’s Paradox!

  15. 15
    deejayoh says:

    Call me a heretic, but it looks to me like we will see the C/S for Seattle go positive on a year over year basis some time this spring.

  16. 16

    RE: deejayoh @ 15
    You’re a heretic.

  17. 17
    AMS says:

    RE: Steve Tytler @ 13

    Remember, there is really no “Seattle housing market.”

    How sad is the MLS to hear that there is no market?

  18. 18
    AMS says:

    RE: deejayoh @ 15 – Going positive from a flat line doesn’t take or say much…

  19. 19
    Scotsman says:

    RE: deejayoh @ 15

    Heretic!

    Well, it may tip over for a brief period but I’d say you’re ignoring the context of the national economy. We really haven’t seen any improvement in the numbers that feed into housing prices and don’t expect to for some time. What we have seen is mass psychological fatigue with the day to day negative in the economy and a break from the herd by a minority who where dying to buy a house. Nothing more that a mini bull rally in housing.

    We should be returning to the regularly scheduled programming soon.

  20. 20
    AMS says:

    RE: softwarengineer @ 10 – At what price and quantity is gross sales maximized? Is profit maximized at the same price point?

  21. 21
    Scotsman says:

    The slow drift to the bottom in fundamentals continues- housing prices will follow.

    U.S. consumer confidence comes in at 46, lowest figure in 10 months
    http://www.marketwatch.com/story/us-cons….

    FDIC reports higher number of banks on problem list, deeper deficit of insurance fund
    http://www.marketwatch.com/story/fdic-nu….

  22. 22
    AMS says:

    RE: The Tim @ 7 – I read a different news report:

    “The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off about 3 percent from December last year, nearly matching analysts’ estimates.

    The index is now up more than 3 percent from its bottom in May, but still 30 percent below its May 2006 peak.”

    Authored by Adrian Sainz

    That’s probably a better report.

  23. 23

    RE: AMS @ 20

    I Agree With You, It’s a Big Question

    The problem is, like Buffett’s $4B in losses, the wishful thinking bankers are likely lemmings all lined up to jump off the cliff holding on to bad investments and soon too, hoping for a recession bottom [if I just keep calling it year after year, it’s just gotta happen].

    If I’m right, the banker lemmings should have sold quick for less the last year, than hold on to lose even more on a pipe dream the recession’s bottomed.

  24. 24
    Dave0 says:

    RE: deejayoh @ 15 – Agreed. I’ve been saying that for months now. I still think about March 2010 will be when prices “bottom” out. We’ll hit 0% YOY change a month or two after that.

  25. 25
    TheHulk says:

    I wonder how C/S takes into account short sales (if not foreclosures). CalcRisk has repeatedly been saying this is the year of the short sales. If C/S is discarding that data, isn’t it actually under reporting the drops in price.

  26. 26

    Blogger Debt and Occupation

    It would interesting to note all the characteristics of the bloggers:

    1. How much debt they own on their home [assuming they own a home] and how much it might be worth?

    2. What their occupation is and if keeping real estate prices even flat helps their bottom line?

    Sometimes our usernames on this blog tell it all; but knowing where our political roots are will help the reader. BTW, I have everything to lose in equity and nothing to lose by my occupation with potential Seattle house price collapses in 2010. I’m more a voice for the renters/consumers, the little guy….you know, the ones our government has almost forgotten lately.

  27. 27
    patient says:

    Decembers monthly rate of decline makes me wonder if we aren’t already 25% off peak today.

  28. 28
    per_se says:

    The prices currently appear like they may bottom out around March but what happens when the tax credit expires around that same time?

    As Tim and other have pointed out the tax credit is artificially raising prices and borrowing demand from future sales. If all things stay equal and we don’t see other factors like the economy and wage growth rise then you’d expect a dip once the credit expires.

  29. 29

    Scotsman and I don’t agree on a lot of things( mainly politics), but we’re in agreement here. I don’t think these numbers really indicate a bottom. Even if we go into positive YOY territory this spring, home prices are still too high,the tax credits will likely expire, interest rates may rise, and , basically, the economy still sucks.
    Where we differ is the extent of the decline. I think we’ll see some more decline in home prices, and we won’t see a real bottom until the end of this year at the earliest. and then I see flatness for a few years after that. If I’m not mistaken, Scotsman sees that decline continuing for many years into the future. His is an opinion I respect and see as a possibility. I just like my own opinion more:)

    By Scotsman @ 19:

    RE: deejayoh @ 15

    Heretic!

    Well, it may tip over for a brief period but I’d say you’re ignoring the context of the national economy. We really haven’t seen any improvement in the numbers that feed into housing prices and don’t expect to for some time. What we have seen is mass psychological fatigue with the day to day negative in the economy and a break from the herd by a minority who where dying to buy a house. Nothing more that a mini bull rally in housing.

    We should be returning to the regularly scheduled programming soon.

  30. 30
    Ray Pepper says:

    RE: Steve Tytler @ 13

    There will be some neighborhoods in the Puget Sound region that will boom during the next couple years….

    2 questions I have with this statement:

    1. Define Boom from lets say today Feb 23, 2010.

    2. Please tell us this neighborhood or at least (1) that will “Boom” in the “next couple years here.”

    ******************************

    Lastly, can u update us on your Broker Friend in Az who owes 500k on his house which is most likely worth 230k and not even 250k anymore. Still making payments? Short sale? Foreclosure? I just want to keep track on YOUR friend. All mine(in this dilemma) already gave their home back or are in the midst of a short sale. I know we walk in different circles but in the end I believe YOUR friend will join MINE at the Short Sale/Foreclosure finish line.

  31. 31
    patient says:

    RE: Ira Sacharoff @ 29

    “home prices are still too high,the tax credits will likely expire, interest rates may rise, and , basically, the economy still sucks.”

    March is also the month that the FED will end buying MBSs so I think interests are more than likely to rise. Another big factor is the future of FHA. What is the current status of FHA? I haven’t seen an update since November of their balance sheet but it’s likely gone worse. If/when it’s reserves are gone, what happens then? Is the congress willing to continue to burn money in it’s fires or are the national debt issue and the populist uproar about it getting to them. All these factors do not in anyway spell bottom to me.

  32. 32

    RE: Ira Sacharoff @ 29

    To Support Your Assumption of Flat Prices by 2011

    If we’re really grabbing the foreign campaign contribution sources by the horns [BTW, Japan has a real distain for Democrats putting their corporation on a flat table with American engineered/managed corporations, re: safety defects], and it means a switch back to our national college educated backbone [Detroit] with a plethora of parts companies staying domestic too….real estate in Seattle may have a good chance of flattenning out then, with a surge in our American industrial base.

    But assuming, its the same old, same old NWO cess pool ahead of us….Scotsman is right on.

  33. 33
    Scotsman says:

    Buffett’s Partner: ‘It’s Over’ for U.S. Economy”

    Phfffft- what does this guy know about anything? It’s a great time to buy!

    http://moneynews.com/Headline/munger-buffett-economy-debt/2010/02/22/id/350529?s=al&promo_code=97C7-1

  34. 34
    Questions says:

    RE: The Tim @ 7

    So the next question is why would Bloomberg falsify the data summary? What’s in it for them? Investment firms know what margin is and short the market daily. So why make the public believe the housing market is going up when it is not? The goal seems to be to dupe the public — but for what purpose? Why is doing this so important?

  35. 35

    RE: Scotsman @ 33

    And yet, as Buffett’s partner, Charlie Munger is involved with the purchase of stock and companies for Berkshire Hathaway, even quite recently. How do you reconcile that?

  36. 36

    RE: Questions @ 34

    Let Me Give It a Stab

    Assuming they lied [it’s not proven, just darn good empirical evidence]; perhaps it’s to slow the inevitable “train wreck” down a bit….like Scotsman said, a short-term phony bull market; to die out like a cheap firework when the upper middle class government welfare spigot is turned off.

    BTW, I’m for a slow motion train wreck economy too….I’ve seen so many changes out my window in the past 3 yrs…..it’s plenty fast enough for me.

  37. 37
    Eastside Real Estate Agent says:

    Unfortunately that chart doesnt take into account the sales that were not reported. We have hit a bottom.

    Buy now or be priced out forever.

  38. 38

    RE: Ira Sacharoff @ 35

    The Rich are Lemmings too?

    Even Buffett admitted he invested on wishful thinking; and you know, America was built on dreams…..it’s just this time, the dream base has a broken domestic engineering backbone.

  39. 39

    RE: Eastside Real Estate Agent @ 37

    Your Blogger Username Says It All

    Thanks for making it clear.

  40. 40
    AMS says:

    RE: softwarengineer @ 39 – For every buyer there must be a seller, why don’t agents suggest that current owners take advantage of current market conditions and sell now?

  41. 41
    D. in Ballard says:

    I really don’t see it bottoming this year in my tier. I just got an auto-generated email from my realtor with 18 properties. 6 of those were 750k and above and all 6 of those were overpriced in my view. There was at least one bungalow. Good neighborhoods are important, but I don’t think that bungalow is selling for 750k. There was an interesting 699 that will probably go, and then this one for 725 which will also probably go.

    http://www.redfin.com/WA/Seattle/1816-N-57th-St-98103/home/305359

    My point is that there seems to be renewed optimism which is causing a rush of overpriced houses on the market. These houses are unlikely to stir people like me. Sure you’ll get your occasional buyer for one of these properties and the sellers should consider themselves lucky, but I don’t think there’s enough buyers out there for each seller who wants to sell a 600-750k priced home. Occasionally I see a home in the 500s that should be in the 600s. It goes right away. Buyers are out there, but they want a screaming deal. Unless seller behavior changes, I don’t see a lot of us jumping in.

  42. 42
    Scotsman says:

    RE: Ira Sacharoff @ 35

    I think Buffett would reply that it’s his job to manage money, not just hide on the sidelines. But with that in mind, they don’t seem to have a consistent strategy in play. Last I read they were moving out of basic consumables (Johnson + Johnson, Kraft, etc.) and into more currency and transportation oriented buys. Much like Ray’s assertion that there will always be some “gems’ out there, Buffett’s job is to look for the gems that have a chance of growth even under difficult circumstances and/or play currency flows, etc. But just like housing, the market as a whole can be going down while a few bright spots go against the trend. It’s a pretty risky time to trade though with the government changing the rules every day. And even Buffett can and has lost a ton of money.

    My take from the article was that they don’t expect a return to anything normal any time soon.

  43. 43

    RE: AMS @ 40
    Perhaps the Buyer Pool is Unqualified, Like D in Ballard Alleged?

    Add 19.9% underemployed to the 10% unemployed and the approx 5-10% ghost unemployed [not tracked], article in part:

    “…WASHINGTON, D.C. — Gallup’s daily measure of U.S. employment reveals that 19.9% of the U.S. workforce was underemployed during the month of January, translating to close to 30 million Americans who are working less than their desired capacity. Those who were underemployed reported spending 36% less than those who were employed, $48 per day versus $75 per day….”

    http://www.gallup.com/poll/125960/Underemployed-Report-Spending-Less-Employed.aspx

    But don’t worry about approx half of America’s workforce in the unemployed, underemployed and ghost unemployed sector, as it won’t affect Seattle area affordability of home purchasing. Now I know why the freeways were so empty this weekend.

  44. 44
    mukoh says:

    RE: softwarengineer @ 43 – I don’t know which freeways you drive, I was in traffic to Salty’s Brunch through downtown. This was morning. Pacific Place was packed as well. Maybe you were thinking 167 was light?

  45. 45
    pfft says:

    Home price declines are being cut in half. this is good news just as home price gains being cut in half are a signs of market distress.

    remember when cash for clunkers was responsible for the good car sales numbers? well car sales kept recovering even without support.

  46. 46
    pfft says:

    By Scotsman @ 33:

    Buffett’s Partner: ‘It’s Over’ for U.S. Economy”

    Phfffft- what does this guy know about anything? It’s a great time to buy!

    http://moneynews.com/Headline/munger-buffett-economy-debt/2010/02/22/id/350529?s=al&promo_code=97C7-1

    buffet is saying the opposite with his big railroad buy.

    “Buffett calls the deal an “all-in wager” on the USA’s economic future. “We will come out of the downturn, I just don’t know when,” Buffett told USA TODAY. “My time horizon is we will hold (the railroad) forever.” While Buffett doesn’t expect spectacular growth from the rail business, he says trains that transport stuff such as corn, cars and coal will deliver “steady and certain growth over the decade.”

    http://www.usatoday.com/money/industries/2009-11-03-berkshire-bnsf-buffett_N.htm

  47. 47
    pfft says:

    By softwarengineer @ 38:

    RE: Ira Sacharoff @ 35

    The Rich are Lemmings too?

    Even Buffett admitted he invested on wishful thinking; and you know, America was built on dreams…..it’s just this time, the dream base has a broken domestic engineering backbone.

    Exports are running at a $100-1500/billion a month. the lower dollar that everyone is scared of will only help improve employment.

  48. 48
    The Tim says:

    By pfft @ 45:

    remember when cash for clunkers was responsible for the good car sales numbers? well car sales kept recovering even without support.

    Some recovery. U.S. Light Vehicle Sales 10.8 Million SAAR in January

    This is the lowest level since October and below the levels of last July. Obviously sales were boosted significantly by the “Cash-for-clunkers” program in August and some in July.

    The current level of sales are still very low, and are still below the lowest point for the ’90/’91 recession (even with a larger population).

  49. 49
    TheHulk says:

    RE: The Tim @ 48

    Ha ha, I love it when Tim brings out an actual statistic that blows statements like “well car sales kept recovering even without support” out of the water. Any responses to that Pfft?

  50. 50
    pfft says:

    By TheHulk @ 49:

    RE: The Tim @ 48

    Ha ha, I love it when Tim brings out an actual statistic that blows statements like “well car sales kept recovering even without support” out of the water. Any responses to that Pfft?

    yep. car sales are up YOY about 3 months in a row. let’s review. car sales spike and the permabears say it’s all cash for clunkers. sales do plunge and sept posts a YOY decline. the next few months are pretty good with some good YOY gains. the only thing we can conclude is that cash for clunkers did have a short-term effect but car sales seem to being doing ok.

  51. 51
    Scotsman says:

    RE: pfft @ 46

    “My time horizon is we will hold (the railroad) forever.”

    Seems like a safe bet. But it still doesn’t mean his return will ever be positive. You understand that, right? It just means he will have some cash flow. The example you’ve picked shows you really don’t understand the bigger picture. In even a high school debate you would be left bleeding on the floor after these statements.

  52. 52
    Scotsman says:

    RE: pfft @ 47

    “the lower dollar that everyone is scared of will only help improve employment.”

    Not necessarily, especially as other countries’ currencies fall along with ours. But a devalued currency will also make everything we import more expensive, including the raw materials, energy, etc. That may actually hurt employment. You have to count both sides of the equation in real life, not just cherry-pick the one that works to support a specific position. There’s no depth to your argument.

  53. 53

    By TheHulk @ 25:

    I wonder how C/S takes into account short sales (if not foreclosures). CalcRisk has repeatedly been saying this is the year of the short sales. If C/S is discarding that data, isn’t it actually under reporting the drops in price.

    They throw out anything that is too extreme. Thus the house that gets flipped (and yes that is still occurring) probably gets ignored both on the initial purchase and on the resale.

  54. 54

    By patient @ 27:

    Decembers monthly rate of decline makes me wonder if we aren’t already 25% off peak today.

    If you look at the numbers, we’re less than 1% off or March’s C/S number. March was 149.03 and December 147.54. The market has been very flat since March (or flat since February if you use NWMLS King County median).

  55. 55

    By Ira Sacharoff @ 29:

    Scotsman and I don’t agree on a lot of things( mainly politics), but we’re in agreement here. I don’t think these numbers really indicate a bottom.

    I’d agree with that, but I’d say the numbers wouldn’t indicate a bottom until about two years after they bottom! And you’d only know that because of the two years since that they rose. Past prices don’t tell you much at all about the future.

  56. 56

    RE: pfft @ 50 – Car sales are really a different animal. To some extent car sales will recover after prolonged periods of low sales just because cars wear out. People don’t tend to go out an buy a new house when something goes wrong with their old one, convincing themselves that it would be cheaper to buy a new one than fix the old one.

  57. 57

    RE: Kary L. Krismer @ 55
    That’s true of both real estate and the stock market. And it’s a typical investor mistake, chasing after past results.

  58. 58
    The Tim says:

    By pfft @ 50:

    the only thing we can conclude is that cash for clunkers did have a short-term effect but car sales seem to being doing ok.

    I beg to differ that “the only thing we can conclude” is that “car sales seem to “being doing ok.”

    Adjusted for population and indexed to 100 = the first month of the available data, car sales have recovered slightly from the absolute pit, but they’re still in the toilet.

    Furthermore, if we zoom in on 2008-2009, it becomes obvious that the cash for clunkers was a 1-time boost only.

    Sales had already begun to recover slowly off the low before cash for clunkers was introduced in July. July and August saw a boost of 5.3 million in the annual sales rate over the preexisting recovery trendline, followed by a dip of 1.0 million in the annual sales rate in September, and a return to the same exact trendline.

    So the US taxpayer spent $3 billion dollars for a one-time net boost of about 360,000 sales (4.3 million / 12). What a deal.

    [Edit: I just realized the numbers above are the seasonally-adjusted annual sales rate but I originally referred to it as if it were the raw number of monthly sales. I have corrected this.]

  59. 59

    RE: The Tim @ 58 – I don’t get the “one time boost only” comment. Was anyone suggesting it would jump start sales?

  60. 60
    AMS says:

    RE: pfft @ 50 – I think I am starting to understand what you mean by a recovery more and more. This is not what I’d call a recovery, but now that I know how you use the term, I’ll be far more understanding.

    Flat is the new up.

  61. 61
    AMS says:

    By Kary L. Krismer @ 56:

    RE: pfft @ 50 – Car sales are really a different animal. To some extent car sales will recover after prolonged periods of low sales just because cars wear out. People don’t tend to go out an buy a new house when something goes wrong with their old one, convincing themselves that it would be cheaper to buy a new one than fix the old one.

    The average age of cars has been increasing. The average number of cars per household has also been increasing. With this in mind, I suspect that there is plenty of slack in the market.

    Actually what I have been thinking of doing is strictly looking at economics figuring out when someone should replace a “clunker” for something newer.

  62. 62
    AMS says:

    By Kary L. Krismer @ 59:

    RE: The Tim @ 58 – Was anyone suggesting it would jump start sales?

    Yes, there were plenty of people. In fact, some went further to suggest that it would help the entire economy. Others suggested cleaner air, better energy efficiency, and so on.

    To what extent has it successful? Was it worth the cost?

  63. 63
    AMS says:

    RE: Ira Sacharoff @ 57 – And how does that credit score work?

  64. 64
    The Tim says:

    RE: Kary L. Krismer @ 59 – Perhaps not in this thread (though as AMS points out, certainly there were plenty of people at the time saying that it would). The first part of my comment was a response to pfft’s comments in this thread, the second part was just an observation that I thought was interesting when I actually plotted the data myself.

  65. 65

    By AMS @ 62:

    By Kary L. Krismer @ 59:

    RE: The Tim @ 58 – Was anyone suggesting it would jump start sales?

    Yes, there were plenty of people. In fact, some went further to suggest that it would help the entire economy.

    Ignoring the environmental issues, I could see where it would benefit the entire economy, but over a longer period of time. Sort of planting the seeds type of analysis.

  66. 66
    One Eyed Man says:

    Several comments on CFC:

    1. I kind of thought CFC was stupid and too small a piece of the economy and federal budget to spend much time analyzing. I also thought that it was mainly a give away program and unlikely to have a positive return based on the benefit to the economy vs the government cash outlay per car. But now that it seems that Ford and GM will survive, I like it a little more.

    2. Like stimulus in the rest of the economy, we will never really know if it helped because we will never really know what would have happened if they didn’t do it.

    3. If nothing else, It probably did clear out some inventory so that the manufacturers could avoid slowing down assembly lines and laying off more people than they already did.

    4. Surprisingly none of the Bears on the thread have mentioned all the demand CFC borrowed from the future. I guess that’s because if you tried to account for the “borrowed demand” by redistributing the CFC spike equally over about 12 future months, the “adjusted” auto sales might appear to show at least a little of the recovery that Pfft has been talking about.;-)

  67. 67
    Scotsman says:

    RE: One Eyed Man @ 66

    “Surprisingly none of the Bears on the thread have mentioned all the demand CFC borrowed from the future.”

    Consider it mentioned. ;-)

    I’m sure CFC borrowed from future demand, but I’m also certain that we’ll never be able to quantify it. There are too many factors feeding into the decision of whether or not to to buy a new car. There are the easy ones, those that traditionally correlate well with purchase rates- interest rates, employment levels, wage growth, miles driven, etc. Then there are the less easily quantified factors- future expectations, wealth effects (rising HELOC funds?), changes in fashion, social pressures, etc. We can know anecdotally and logically that increased incentives now can cause some to move up a purchase decision, and that there will then be one less purchase made in the more distant future. But with all the noise in the model it’s pretty hard to predict what would be a normal level of demand at any point in the future, let alone a decrease due solely to increased incentives in the present. We’re left with a situation where we know something is most likely true, but will never be able to prove it.

  68. 68
    corncob says:

    Looks like SFO is headed into a new bubble already, those crazy bastards in the bay area just love burning money.

  69. 69
    pfft says:

    By Scotsman @ 51:

    RE: pfft @ 46

    �My time horizon is we will hold (the railroad) forever.�

    Seems like a safe bet. But it still doesn’t mean his return will ever be positive. You understand that, right? It just means he will have some cash flow. The example you’ve picked shows you really don’t understand the bigger picture. In even a high school debate you would be left bleeding on the floor after these statements.

    yeah I guess not.

    ““Buffett calls the deal an “all-in wager” on the USA’s economic future.”

    “We will come out of the downturn, I just don’t know when”

    he could get cash flow holding bonds. he bought a railroad because he thinks we’ll be shipping more goods in 3 years, 5 years and 10 years.

  70. 70
    pfft says:

    By Scotsman @ 52:

    RE: pfft @ 47

    “the lower dollar that everyone is scared of will only help improve employment.”

    Not necessarily, especially as other countries’ currencies fall along with ours. But a devalued currency will also make everything we import more expensive, including the raw materials, energy, etc. That may actually hurt employment. You have to count both sides of the equation in real life, not just cherry-pick the one that works to support a specific position. There’s no depth to your argument.

    it’s funny that you call me names when you say this:

    “Not necessarily, especially as other countries’ currencies fall along with ours.”

    you understand that currencies trade as pairs? other currencies can’t fall while ours fall. currencies may fall against other things like gold or stocks but not in the way currencies pairs do. if the euro is rising the dollar is falling. if the dollar is rising the euro is falling.

    ” You have to count both sides of the equation in real life, not just cherry-pick the one that works to support a specific position.”

    this is not true at all. look at the history of devaluations. economies bounce back quicker than everyone thought because exports are boosted. would you rather have a job and 10% inflation or no job and 2% inflation?

  71. 71
    pfft says:

    By Kary L. Krismer @ 56:

    RE: pfft @ 50 – Car sales are really a different animal. To some extent car sales will recover after prolonged periods of low sales just because cars wear out. People don’t tend to go out an buy a new house when something goes wrong with their old one, convincing themselves that it would be cheaper to buy a new one than fix the old one.

    why did cars sales plunge though? it’s because everyone and then some had a new car. now the reverse is happening.

  72. 72
    pfft says:

    By The Tim @ 58:

    By pfft @ 50:

    the only thing we can conclude is that cash for clunkers did have a short-term effect but car sales seem to being doing ok.

    I beg to differ that “the only thing we can conclude” is that “car sales seem to “being doing ok.”

    Adjusted for population and indexed to 100 = the first month of the available data, car sales have recovered slightly from the absolute pit, but they’re still in the toilet.

    Furthermore, if we zoom in on 2008-2009, it becomes obvious that the cash for clunkers was a 1-time boost only.

    Sales had already begun to recover slowly off the low before cash for clunkers was introduced in July. July and August saw a boost of 5.3 million in the annual sales rate over the preexisting recovery trendline, followed by a dip of 1.0 million in the annual sales rate in September, and a return to the same exact trendline.

    So the US taxpayer spent $3 billion dollars for a one-time net boost of about 360,000 sales (4.3 million / 12). What a deal.

    [Edit: I just realized the numbers above are the seasonally-adjusted annual sales rate but I originally referred to it as if it were the raw number of monthly sales. I have corrected this.]

    everything must be in context. remember these headlines that seemed to happen month after month?

    “Ford U.S. January Sales Down 44%”

    a small YOY increase is definately what I would call ok.

  73. 73
    pfft says:

    By AMS @ 60:

    RE: pfft @ 50 – I think I am starting to understand what you mean by a recovery more and more. This is not what I’d call a recovery, but now that I know how you use the term, I’ll be far more understanding.

    Flat is the new up.

    exactly! things don’t have to be perfect. we don’t have to pay off all our debt in one crisis. it took decades to get here it won’t be over in one crisis.

  74. 74
    Scotsman says:

    RE: pfft @ 69

    Not necessarily. Maybe it means he would rather own something real than a bond that may or may not ever pay off if the economy collapses.

  75. 75
    Scotsman says:

    RE: pfft @ 70

    “you understand that currencies trade as pairs? other currencies can’t fall while ours fall.”

    Sure they can- there are more than two currencies comprising the world economy. The dollar and the euro can both fall against the yuan or yen, or perhaps the pound. Whole groups of currencies can and do fall or rise against other groups- it’s not just pairs, or even triplets that constitute world trade.

  76. 76
    pfft says:

    By Scotsman @ 75:

    RE: pfft @ 70

    “you understand that currencies trade as pairs? other currencies canâ��t fall while ours fall.”

    Sure they can- there are more than two currencies comprising the world economy. The dollar and the euro can both fall against the yuan or yen, or perhaps the pound. Whole groups of currencies can and do fall or rise against other groups- it’s not just pairs, or even triplets that constitute world trade.

    you did not say that.

    “Not necessarily, especially as other countries’ currencies fall along with ours.”

    that is wrong.

  77. 77
    pfft says:

    By Scotsman @ 74:

    RE: pfft @ 69

    Not necessarily. Maybe it means he would rather own something real than a bond that may or may not ever pay off if the economy collapses.

    so he wants to own a railroad that will collapse in value in a crisis a long with everything else? a railroad’s earnings are based on people buying things and having them shipped by rail. economic collapse= nothing being shipped by rail. the rails tanked in 08. if he wanted real assests he would own a foreign currency or gold.

  78. 78
    Scotsman says:

    RE: pfft @ 71

    “why did cars sales plunge though? it’s because everyone and then some had a new car”

    No. it was because of primarily two things. Rising fuel costs conflicted with the established sales mix that emphasized large, relatively fuel inefficient trucks, SUV’s, and luxury cars. And second, a record number of vehicles were being purchased with HELOC and lease financing, both of which came to a sudden end with falling home values and a credit crunch.

    In a booming economy everyone would buy a new car every two years and just throw the old one out.

  79. 79
    pfft says:

    here is buffett commenting on his purchase of Burlington.

    “I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit.”

    I am a huge warren fan. I read everything he writes even though sometimes I spell his last name wrong. I watch just about every interview. I’ve read about 8 buffet books.

  80. 80
    pfft says:

    By Scotsman @ 78:

    RE: pfft @ 71
    Ina booming economy everyone would buy a new car every two years and just throw the old one out.

    no, that’s the sign of an unbalanced economy just like owning 5 spec condos was. buying a new car every 2 years is like flushing money down the toilet because of depreciation.

  81. 81
    Scotsman says:

    RE: pfft @ 77

    No. the railroad will always have some value, even if he’s trading chickens or eggs for transportation services. Foreign currencies in an EOTWAWKI scenario? I don’t think so. and have you ever tried eating or shooting gold? Aside from the current fascination with it, there really is very little utility there. I view it as a very heavy, hard to divide secondary fiat currency with a speculative aura. Sort of like tulips, if you get my drift….

  82. 82
    Scotsman says:

    RE: pfft @ 80

    Nonsense. You know who buys Ferrari’s? People who can afford them. You know who buys anew car every two years and donates the old one? People who can afford to. What makes you think people spending their own money, the way they see fit, when they can afford it, is either unbalanced or flushing money down the toilet?

  83. 83
    AMS says:

    RE: pfft @ 80 – Will you please define “depreciation?”

  84. 84
    AMS says:

    RE: One Eyed Man @ 66

    Surprisingly none of the Bears on the thread have mentioned all the demand CFC borrowed from the future. I guess that’s because if you tried to account for the “borrowed demand” by redistributing the CFC spike equally over about 12 future months, the “adjusted” auto sales might appear to show at least a little of the recovery that Pfft has been talking about.;-)

    Yes, without CFC there would be more cars sold today. This is part of the problem of borrowed demand; it depresses the potential recovery.

    If nothing else, It probably did clear out some inventory so that the manufacturers could avoid slowing down assembly lines and laying off more people than they already did.

    Yes, the high discount rate–something was wanted right away, even if it took away from sales in the future.

    I do agree, however, that it was nice to see the car dealers actually getting business, even if sales slacked back down right after CFC ended.

    Ultimately new car sales are still very low.

  85. 85
    pfft says:

    By Scotsman @ 81:

    RE: pfft @ 77

    No. the railroad will always have some value, even if he’s trading chickens or eggs for transportation services. Foreign currencies in an EOTWAWKI scenario? I don’t think so. and have you ever tried eating or shooting gold? Aside from the current fascination with it, there really is very little utility there. I view it as a very heavy, hard to divide secondary fiat currency with a speculative aura. Sort of like tulips, if you get my drift….

    you don’t get it. if the world ends nobody is going to be shipping eggs. sure some people will be, but railroad income will plunge and the stock price will tank. buffett bought the railroad because the economy will recover. he could buy burlington much cheaper if he thought the economy would tank. obviously he doesn’t believe that.

    As far as currencies go, look to Argentina, Iceland and the Asian tigers as to the value of foreign currencies in a crisis. foreign currencies rose in each case. gold soared in argentina. gold soared in iceland.

    here is an article on Zimbabwe.

    ZIMBABWE: Expats keep families afloat

    “A 2006 study found that at least half of all households in Harare and Zimbabwe’s second city, Bulawayo, were regular recipients of goods and money from relatives living outside the country. As Zimbabweans in Britain increase their earning power, there has been a proliferation of companies through which they can remit money, and even fuel and groceries.”

    “The economic crisis in Zimbabwe, with inflation at 14,000 percent and shortages of even basic commodities, means John and Chipo have become the mainstay of their families at home. “We have to send them money regularly because there is virtually no way for them to support themselves at the moment,” John said.”

    http://www.irinnews.org/report.aspx?ReportID=75536

    In Zimbabwe they are mining gold to stay alive.

    ZIMBABWE: The brave turn to mining to survive
    http://www.irinnews.org/report.aspx?reportid=34151

  86. 86
    AMS says:

    RE: corncob @ 68

    About 4 years ago:

    SF median asking price: $668k
    San Jose median asking price: $739k

    Seattle: $390k

    Last Fall:

    SF median asking price: ~$550k
    San Jose median asking price: ~$550k

    Seattle: ~$360k

    Today:

    SF median asking price: $469k
    San Jose median asking price: $490k

    Seattle: $320k

    http://www.housingtracker.net/

    CRAZY!

  87. 87
    AMS says:

    RE: pfft @ 85 – As long as we have China sending cheap goods, railroads will be a good bet, even during a down economy.

    Going further, if the cost of trucking goes up, then railroads will be favored. Rail traffic, especially intermodal container shipments, will probably increase during a bad times, as traffic is diverted from highway to rails. Coal traffic might go down a bit, as people try and conserve, but overall coal shipments will remain constant. The majority of coal is moved by rail.

    It should be noted that the transportation industry, especially the Trucking Industry, did very well during the Great Depression Era.

    By no means am I suggesting that trucking will go away, but some of the freight that is carried by highway could be diverted to rails. Small communities where rail service is not present will continue to be served by trucks.

    On a final note, I doubt many eggs are shipped by rail, but honestly I don’t track eggs that carefully. Seattle’s Garbage is shipped by rail, and the rail cars can often be seen lined up in SoDo.

  88. 88
    David Losh says:

    RE: pfft @ 79

    Buffet bought the rail road on a deal for coal. He was moving coal for a short term gain. Now with the stabalized price of oil and the first nuclear reactor going into construction he may have made a bad bet.

  89. 89
    David Losh says:

    RE: pfft @ 85

    Gold has been an interesting speculative bubble. It was a no brainer to buy gold in 2001. The gold markets were reenforced in the crisis of 2007, 2008. We are now seeing the people who need, let me emphasize need, to sell off the gold they bought so they are hyping the market.

    My speculation about the gold market is that it’s an Asian run to buy gold with new found wealth. As either a short or long term investment it’s an isolated market place that can no longer be predictive.

  90. 90
    David Losh says:

    RE: Questions @ 34

    We found out today why the hype of the home price increase. The stock market lost 100 points based on a lack of consumer confidence.

    The article by bloomberg was to counter act that consumer confidence report with some news that would make people feel a bit more hopeful about over all wealth, namely housing values.

  91. 91
    Scotsman says:

    RE: pfft @ 85

    Here, take 10 minutes to read this and expand your range of possibilities:

    http://www.oftwominds.com/blogfeb10/future-guesses02-10.html

  92. 92
    patient says:

    RE: Scotsman @ 91 – The desciption he gives of the current situation is very close to my own opinion. I’m deliberately avoiding to think of or speculate about the future of the political system until there are enough signs of an impending larger change.

  93. 93
    ARDELL says:

    RE: patient @ 27

    Not yet…because it went up and then down…by 4th quarter 2010 we will be.

  94. 94
    Scotsman says:

    RE: patient @ 92

    Yup, he has a pretty good grip on the current situation, it’s interesting reading. With the entitlement class pretty much equal to the producing class in power and influence it’s very hard to predict which way the future will break. I think a deciding factor could be the extent to which America is still seen as a land of opportunity and reward as opposed to the heavily socialized European nations. Which side is willing to fight the hardest for their beliefs? It’s an interesting if somewhat disconcerting time to be alive.

  95. 95
    Scotsman says:

    RE: pfft @ 85

    Zimbabwe is too much of an outlier to really be useful to our discussions. There are significant differences between a third world dictatorship and the world’s leading military and economic power and our position as the world’s reserve currency. You can’t really compare. Germany would have been a better example for a whole host of reasons.

    I don’t doubt you’ve done a bunch or reading, or that you’re a smart guy. But you clearly haven’t pulled all of your exposure to economic ideas together into a coherent and consistent theory of how the world works. A few data points trending up doesn’t make for a recovery of any kind. You have to look at the relationships between factors, be always cognizant of feedback loops and intended/unintended consequences, and focus more on causes, not effects. And when dealing with statistics, especially those compiled by the government, you need to make yourself aware of what is really in the number. Hint: the good stuff is always in the footnotes, not the press release.

    I’m off to CA for a week or so and won’t be able to “guide” you, so try to keep your enthusiasm for the pending recovery constrained by at least a few facts now and then, unlike your claims about the recovering auto industry, OK? As they say in Hollywood- “love ya, baby!” “Let’s do lunch- sometime”

  96. 96

    RE: Scotsman @ 51

    Bernanke Gave the Stock Market a Nice Bedtime Story

    To keep interest rates low for a bit. But WSJ begs to differ and encourages investors to get real and get ready for the 2010 rate hikes. Mark your calendars for 3 months from now WSJ alleges.

    http://finance.yahoo.com/banking-budgeting/article/108905/bracing-for-higher-interest-rates?sec=topStories&pos=4&asset=&ccode=

  97. 97
    pfft says:

    By AMS @ 87:

    RE: pfft @ 85 – As long as we have China sending cheap goods, railroads will be a good bet, even during a down economy.

    and don’t forget when the dollar collapses(I am channeling peter schiff) we can send our exports to europe and china on those rails.

  98. 98
    pfft says:

    By David Losh @ 88:

    RE: pfft @ 79

    Buffet bought the rail road on a deal for coal. He was moving coal for a short term gain. Now with the stabalized price of oil and the first nuclear reactor going into construction he may have made a bad bet.

    he didn’t buy it just for coal. you can ship anything by rail.

  99. 99

    By pfft @ 97:

    By AMS @ 87:

    RE: pfft @ 85 – As long as we have China sending cheap goods, railroads will be a good bet, even during a down economy.

    and don’t forget when the dollar collapses(I am channeling peter schiff) we can send our exports to europe and china on those rails.

    I think you may have a misunderstanding about the situations where it’s appropriate to ship by rail! ;-)

  100. 100
    pfft says:

    By Scotsman @ 94:

    RE: patient @ 92 I think a deciding factor could be the extent to which America is still seen as a land of opportunity and reward as opposed to the heavily socialized European nations..

    yes because we know those heavily socialized european countries are TERRIBLE places to live. throw in canada too! absolutely no innovation takes place in Europe.

  101. 101
    pfft says:

    By Scotsman @ 95:

    RE: pfft @ 85

    Zimbabwe is too much of an outlier to really be useful to our discussions.

    because I proved you wrong you called zimbabwe an outlier. gold for bread.

    I gave you almost a week to tell me how the economy recovers. you didn’t answer. you don’t know how. all you can do is discount any good news because of debt or the federal reserve. if gdp grows by 6% of falls by 6% you don’t care because you are a permabear. I used to be like you guys. there was no data point or stock market number that could convince me that we recovered out of the 2001 recession. I was sure!

    I learned this time. listen to the market. it doesn’t care what you think. most of the time you don’t know more than it does. listen to the data.

  102. 102
    Mindwrack says:

    Thanks so much for the oftwominds link Scotsman. There is some really interesting information in that link. As a lurker here for a year or so, I’ve found that the political, economic and housing conversations here have shaped my views substantially. I always appreciate the pov’s that you and Softwareengineer bring…tempered by Tim and and Ira. It is posters like you all that make this the only blog that I follow and recommend.

  103. 103
    Mikal says:

    RE: Mindwrack @ 102 – I’m going to hurl.

  104. 104
    David Losh says:

    RE: pfft @ 98

    Owning a rail road may sound glamorous, but……

    The profit is off set by maintaining the lines, Union Workers, public liability, and the list goes on.

    Rail Road cars can be profitable, if you have product to ship.

    Warren is the one who mentioned the coal, so I suspect that is his product.

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