Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Case Shiller Home Price Index the Leading Indicator of Economic Downturn

Economics / US Economy Feb 07, 2008 - 01:21 PM GMT

By: Tim_Iacono

Economics Best Financial Markets Analysis ArticleBy popular demand, the collection of charts featuring the S&P Case-Shiller Home Price Index has been updated. First, the home price index versus one of stupidest things that economists have ever dreamed up - the home ownership cost substitute used in the consumer price index, otherwise known as "owners' equivalent rent".


CS-HPI and OER

No, it is not being suggested that the HPI be used in place of OER in the inflation statistics because there are other factors that should be included as well - interest rates, property taxes, etc. The chart above simply demonstrates how completely different these two measures are and how disconnected OER and home prices had become.

ooo

As shown below, the absence of real home prices in the Consumer Price Index is a vital ingredient in creating a really big housing bubble. No central banker in their right mind would have short-term rates at one percent, as was the case in the U.S. back in 2003 and 2004, if the inflation rate was at five or six percent.

CS-HPI and CPI

Of course, when looking at the initial monthly mortgage payments that people were signing up to a few years back, the actual monthly costs were not rising anywhere near as fast as actual home prices. This, in itself, should have been a big red warning light that there was something wrong in the financial system rather than it being accepted as conventional wisdom at the time that a "new era" had begun and we were all getting rich.

ooo

In recent months, the slide in home prices has been overwhelmed by soaring energy prices in the chart above, however, if food and energy are removed from the price index, as economists are wont to do to calculate core inflation , another big red warning light is clear to see in the chart below.

CS-HPI and Core CPI

If real home prices are substituted for the almost 30 percent weighted OER component in core inflation, that important inflation statistic would now be minus one percent, and people would be talking about the dreaded "D" word that contemporary economists abhor - "Deflation".

ooo

A recent addition to the known list of fun things you can do with the Case-Shiller Home Price Index is to lay it up against all sorts of other economic statistics. For example, you can put the HPI curve up against job growth as shown below and get the expected results. Housing bubbles are generally good for creating jobs - all the way up to the point when they start deflating.

CS-HPI an NFP

Yes, breaking out some of the individual labor categories, such as residential construction and retail trade, would be the next logical step here. Maybe next time.

ooo

Good news for the banking industry! Credit cards are making a strong comeback now that home prices are declining and home equity ATMs are being shut down all across the country, largely due to there being little or no equity left to borrow because of that plunging red curve below.

CS-HPI and Revolving Credit

Just last week, Countrywide Financial (NYSE: CFC ) sent out over 100,000 letters to homeowners telling them that, due to changing market conditions (i.e., plunging home prices), they could no longer "tap" as much (or, in many cases, any ) home equity. Credit card usage, the primary component in revolving debt, is soaring again.

ooo

Speaking of CountryWide, it's kind of surprising to see that year-over-year home prices had to get well into negative territory before the share price of the nation's largest mortgage lender began to plunge.

CS-HPI and CFC

Then again, the housing price data gets reported about three months after the fact, so, right around the time it became clear that home prices were going down and not up, that's when the going got rough for Angelo Mozilo and company.

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

Copyright © 2008 Iacono Research, LLC - All Rights Reserved

Tim Iacono Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in