Back to back negative housing releases has many wondering – “is the housing market in the process of a double dip?” It’s a valid question, but given the seasonality of the data it requires a bit more exploration. In this morning’s “Breakfast With Dave” David Rosenberg notes the non-seasonal adjustments to the Case/Shiller data:
The Case-Shiller home price index came in a tad below expected in November at +0.24%, which is a discernible slowing from the +0.6% average from June to October. With over 9 million housing units either vacant for sale, in foreclosed inventory or occupied and listed actively, together with a competing record 11% nationwide rental vacancy rate, it’s only a matter of time when home prices succumb to what is still a glaring excess supply backdrop. New household formation is down just over 800,000 at an annual rate so what we are talking about here is 5 year’s worth of underlying demand just to cut the total inventory backlog by half.
Keep in mind that the raw non-seasonally adjusted Case-Shiller price data showed a 0.2% decline and that followed a 0.1% dip in October. The gap between the raw and seasonally adjusted data are quite fascinating because before the bubble burst three years ago, it was absolutely unheard of to see home prices decline on a non-seasonally adjusted basis in either October or November – historically these are months when home prices, on average, rose nearly 1% apiece (or a double digit annual rate). We also detected that the Loan Performance home prices series, which includes distressed sales activity, posted a 0.2% decline in November and is down now for three months in a row.
In our 2009 Investment Predictions we stated that housing would rebound slightly in what will turn out to be a rally based on false hope. Well, it turned out that that was only partially true. The stimulus has done a great deal to stabilize housing prices. Unfortunately for the free market, that stimulus is not done yet. My best guess is that we will see another spike in housing activity as the home credit expires this year. It’s not until that point that we will see the true colors of the U.S. housing market. Due to this, I don’t believe the double dip is quite here yet. Late 2010 and 2011 have the potential to get very interesting, however. Not only will the stimulus be over, but the second wave of resets will be making their way through the market. The Great Recession might just be taking a bit of breather….