Housing: primed to disappoint

Houseprices compared to deliquency rates, 2007 to 2012

Recent good news about the housing market needs to be considered critically, and especially from a broader perspective. The chart above shows two series: first the widely reported S&P Case-Shiller 20-City Home Price Index (SPCS20RNSA, black line) and the second the much less widely reported Delinquency Rate On Single-Family Residential Mortgages (DRSFRMACBS, blue line) over the past five years. Since percentages can be deceptive (and misunderstood) I’ve based lined each series at 100 at the beginning of the observation period.

Clearly there has been a recent bounce in house prices but they are coming off a very low base. Further, mortgage delinquencies, still near record highs, are trending up again. Households become delinquent on their mortgages due to financial stress (i.e., loss of job, reduction in earnings) and if not resolved delinquencies become defaults which leads to foreclosures and an increase in supply. This, of course, means housing could see additional declines in price or, as I’ve argued before, the increases are unsustainable. Some interesting data on foreclosure rates can be found here

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