Sunday, January 1, 2012

notes on the week ended Dec 31st

Case-Shiller Price Declinesit's been a rather slow week in the blogosphere, with some websites taking the week off & others posting erratically or not much more than retrospectives, and there wasnt much in the way of breaking news from the MSM either...but we did have the release of the widely followed case-shiller home price index; for the 20 cities covered by the index, housing property prices fell 1.2% for the 3 months ending october, compared to prices of equivalent properties over 3 months ending in september; the narrower 10 city index was down 1.1%; 19 cities had declines for this report; only phoenix showed a monthly gain...these price declines are greater than would normally occur at this time of year; bill mcbride @ calculated risk seasonally adjusts the case shiller indices for his charts, & he reports the seasonally adjusted 10 city index down 0.5% in the report ending october & off 32.9% from the peak, and the 20 city seasonally adjusted index down 0.6% month over month & off 33.0% from the peak, which is a new new post-bubble low for the 20 city index….on an annual basis, home prices were 3.4% lower than they were in last year's october report, which is consistent with the year over year numbers we've seen from this report for the past several months...for city by city details, the WSJ  produces a sortable table of home prices in the 20 cities in the index, and mcbride’s 20 city year by year graph is included above…although detroit & washington are the only cities showing year over year gains, home prices in detroit, cleveland, las vegas & atlanta are now nominally lower than they were before the turn of the centuryReal House Pricesbill mcbride takes this historical comparison a step further, & looks at house prices in real terms (adjusted for inflation) and shows that in those terms, prices as per the case shiller national index is back to levels not seen since the first quarter of 1999...the adjacent chart shows his comparison for that national index(red), as well as the C/S 20 city index (yellow) & the corelogic index used by the Fed (blue)...since case shiller is the last of the home price indices to report, we can take this opportunity to compare the other readings for october; CoreLogic reported their home price index declined 1.3% in october on a month over month basis, and 3.9% YoY; FNC reported their national index based on only non-distressed home sales (ie, not incl short sales or foreclosures) and their reading showed october prices down 0.6% over the prior month’s prices....RadarLogic reports their 25 city index as being down 2.0% for the month of october, their worst monthly reading in 3 years, with a 5.4% decline year over year; and the FHFA (Federal Housing Finance Agency) only reported a seasonally adjusted index; by that metric, prices were down 0.2% for the month and 2.8% for the year...furthermore, Zillow estimated the total home equity value lost for the year will be almost $700 billion, which compares to the equity lost last year of $1.1 trillion, and a total of $9 trillion value lost since housing prices peaked in 2006...incidently, zillow will also estimate the market value of any home with their "zestimate" tool; type in the street address in the 1st search bar here, the city & state in the second bar, & you'll get room & space details as well as a satellite view of the house...caveat emptor, though, they have mine listed for quite a bit more than what its worth...

these ongoing real estate price declines are now starting to impact local community’s revenues as well; this week Maryland reported the results of property re-assessments over the past three years and found that home valued had declined by 17%, with 9 out of 10 properties losing value and suburban prince george's county showing the worst valuation decline at 37%…since reassessments are infrequent & typically lag price declines by 3 years, this will continue to impact local budgets for years to come, and as i pointed out earlier this year, this declining funding for school districts is one of the problems contributing to the crisis in US public education…there are no more foolish politicians than those who rant about deficits putting a burden on future generations who use that as an excuse to cut funding for their education… & as a country, we are going to have to come up with alternative ways of providing for that funding, because it isnt going to come from property taxes that local residents can vote on…and dont look for a “recovery in the housing market" that the pundits keep talking about….with declining median incomes, a return to a time where real home prices appreciate will not happen again in our lifetimes; as i’ve explained before (here & here) the lesson of this recession is that houses depreciate, just like cars...

in all the congressional commotion of the last few weeks in getting a fiscal 2012 budget passed & extending the three expiring programs (payroll tax cut, unemployment rations, & the doc fix) no one paid attention to the numerous other tax breaks & subsidies that will have also expired by the time you read this...of the roughly 90 "temporary" special interest tax breaks & provisions that congress has been routinely extending, 53 were expected to expire at midnight on the 31st, according to the congressional joint committee on taxation; many of them we wont miss; such as the corn ethanol subsidy, the post 9-11 tax break for developers in lower manhattan, or the special tax breaks for NASCAR race track owners, but among them is the $74,450 exemption that protects about 30 million middle-income households from the Alternative Minimum Tax; a fair guess is that this, as well as others, such as the accelerated depreciation for business capital investments, may be extended retroactively when congress gets back in session on the 17th...& also with congress out of session, the treasury announced early this week that it would be asking for the 3rd tranch of debt ceiling increase on friday, as they were within the statutory $100 billion of the current budget cap; if you recall the provisions of the "budget control act", the negotiated debt ceiling increases came in 3 tranches of $400B immediately, with $500B & the remainder of the $2.1 trillion to be voted up or down as needed later; however, if they were voted down, obama could veto the vote, & the ceiling would presumably be raised anyhow because there's no way the opponents could get the 2/3rds necessary to override a veto; however, due to the minor tempest in a teapot by those members of congress who wanted to be on record as voting against the ceiling increase, bipartisan barry caved in again & postponed the request until such time as his opponents would be back in town to bash his big-spending ways...& while im on the subject of bipartisan barry, this week obama nominated jerome powell to the Fed board; powell is a republican, a bush appointee no less, the former undersecretary of the treasury for domestic finance in the early 90s...if you recall, republicans had earlier blocked the nomination of nobel prize winning economist peter diamond to the same position...some people are saying obama did this so he could also get one of his own selections, jeremy stein, past congress at the same time...but if the man had any testicles, with congress out of town, he'd use recess appointments to fill these positions & all the judgeship vacancies with his people, just like Bush did....even the consumer financial protection bureau, the only part of dodd frank not written by financial lobbyists, is still waiting for confirmation of richard cordray to fill the top spot that should have been given to elizabeth warren...

the last time we looked at europe was after their summit which produced a new treaty imposed by merkel & sarkozy which would subject the 17 eurozone countries to strict deficit ceilings; that was shortly after the Fed & 5 other central banks had co-ordinated the 3 month dollar currency swaps so that the ECB could provide funding to the eurozone banks, which had grown so suspicious of each others solvency that interbank lending had virtually ground to a halt; last week i mentioned in passing that the ECB had further extended $641B in 3 year loans to the eurozone banks in an further attempt to alleviate those bank funding strains (and as some had speculated, possibly loan money to their governments in something of a back door bailout) doesnt appear to be working; every day since last thursday overnight deposits at the ECB by european banks hit new records, and although they declined slightly on friday, virtually all ($591bn) of the 3 year LTRO was being redeposited at the ECB, suggesting interbank lending in europe is still mostly frozen; furthermore, the ECB, which eschews monetization & QE, continues to report balance sheet records, which zero hedge characterizes as “rising parabolically” …and although there was some optimism when the first auction of 6 month italian debt was successful on wednesday; the thursday sale of 10 year bonds met weak demand, & cost them nearly 7%…the new year will bring €740 billion in gross debt issuance for the eurozone governments, including €82 billion in debt issuance in january alone, which means the old debt that they roll over will now have to be serviced at these ever higher rates…

some interesting stories also came out of the UK this week, & it gives us an opportunity to check on how the UK is doing after a year & a half of fiscal conservatism, which started last year with layoffs of a half million public employees; over the christmas holidays, the Cameron government snuck in a provision whereby their national hospitals could now get 49% of their income from private patients, in an attempt to “turn the NHS into a US-style commercial system, where hospitals are more interested in profits than people”'; hidden reductions in tax credits for the poorest britains are now imposing the equivalent of a £2.5bn 'stealth tax' on them, which when combined with price increases, are costing families £5 a day; meanwhile the average UK family now has only £161 of weekly disposable income, which is down 8.4% from this time last year; and last week it was reported that unemployment in the UK continues to rise, now highest level in 17 years, so it should be no surprise that they’re now seeing over 1,000 metal thefts every week, targeting rail lines, churches, war memorials, works of art, manhole covers and even cemeteries, as people try to make ends meet by steaing anything they can sell…

this is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me


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