Case-Shiller Home Price Index Has Flatlined Since January 2009, Chris Whalen Thinks Housing Drags Economy Into Recession In 2013 ($ITB)

Chris Whalen, senior managing director of Tangent Capital and co-founder of Institutional Risk Analytics, believes housing will drag the economy into a recession in 2013. Constrained credit conditions, especially for jumbo loans, will be to blame. He was interviewed on Fox Business on November 27, 2012.

Source: Fox Business

After home prices crashed in 2007-8, the S&P Case-Shiller Home Price Index has flatlined since January 2009. Below is a graph of the 10 and 20-City Home Price Indexes since 1987 (or 2000 for the 20-City index) via the St. Louis Fed. Data is through September 2012.

On a bullish note, housing research firms CoreLogic and Clear Capital recently reported that home prices are up significantly on an annual basis. But, CoreLogic mentioned that October was slower than September, and Clear Capital said November was slower than October. It could be just normal seasonal patterns in play; but, as Clear Capital notes, it could be the "first signs of uncertainty."

Here is a snippet from Clear Capital's December 4, 2012 press release:

"If the cliff becomes a reality, we expect to see a pull back in housing. Faced with higher taxes, many potential homebuyers on the fence could very well be forced to rent. While affordability across the country remains a draw for demand, we've already seen it come down off the highs as prices rise. And at the end of the day, going over the cliff translates to reduced net income for potential buyers. Even if prices remain attractive, taking a hit on income will surely deter some demand at a time when markets need it the most."

November Housing Trends: The first signs of winter or the first signs of uncertainty?
National quarterly price gains were more than halved in November over the month, coming in at just 1.0%. While a slowdown in growth is typical in the winter due to fewer fair market sellers listing their homes, the percentage of REO sales held steady at 18.4%. Should the rate of distressed sales hold steady over the next several months, downward price pressure should be minimal.

The seasonal effects of winter also started to take hold in three out of four regions. A pull back in growth at similar magnitudes was echoed in the West, South, and Northeast, with quarterly gains of 2.0%, 0.8%, and 0.3%, respectively.
The Midwest was the only region to hold the momentum of quarterly growth over October. However, at just 0.9%, the region is in line with the level of growth across the regions and at the national level.

Price gain stalls are not as evident in yearly price trends. National yearly home prices in November held their ground with 4.6% growth. Putting the recovery into perspective, this time last year, national home prices had declined 2.8%. The South also mostly held its ground, with gains of 4.0% over the last year.

And Reuters reported on CoreLogic's release on December 4, 2012:

"CoreLogic's home price index rose 6.3 percent compared to October a year ago, the biggest increase since June 2006 and the eighth consecutive increase in home prices nationally on a year-over-year basis, CoreLogic said.

Home prices fell 0.2 percent in October from September but this was due to seasonal factors as the housing market enters the off season, CoreLogic said."

Housing stocks have had a nice run this year after breaking out in March/April and confirming its move in June. Look at ITB's move over the last twelve months (the iShares U.S. Home Construction Index ETF). So you can understand why home prices are up so much on an annual basis.