Follow Up - Housing Bubble

In response to all the feedbacks received in the previous post, I am adding some more graphs on this topic. First of all, since this Case Shiller index is only maintained for a handful of cities we are definitely missing out on "Lone Rock"s of US. As the name suggests they are the lone rocks... I go to Milwaukee for work and can tell you that it is nice to have four seasons and if you have a decent job and dont mind shovelling snow from your driveway or car lone rocks of US are the places to be in 3 Bedroom/ 3 bathroom houses available for $150K. Call it a piece of dream or peace of mind.

In response to Joe and my friend Bill's suggestion I have done some moving average analysis on the data that I had. To keep it simple, I have compared only Charlotte(where I would like to move) and San Francisco(where I currently live). The graphs have 4 months, 12 months, 24 months & 48 months moving averages. The flattening of the San Francisco 48 month graph towards the end is again an interesting fact however, the Charlotte graphs do not show any downward trend whatsover.





Now, coming to the income aspect(based on the data in http://www.census.gov/hhes/www/income/histinc/h06ar.html ) ,even though it is true that home prices do increase 3-4% yoy to keep up with the inflation the same is not true here. Looking at the median income by region till the year 2006(thats all the data I had in my possesion, I will look for more refined data soon, I know for housing I am comparing city specific data but for income I am comparing region specific data), you see that the absolute values have increased for all the regions.



Interesting thing here is to note the widening income gap between the regions where North-East & West lead the pack. However, by looking at the parallel nature of the lines in the last part of the graph(or the slope of the lines depicting the rate of increase of income), it does not seem that there is any discrepancy between regions in terms of rate of increase of income from 2003 onwards. In the same time frame however, the housing bubble has been busted in most of the cities and it still does not show me any indication that Charlotte, NC will have any major decline in home prices in the coming years and it is completely out of whack with income. But, I am not sure if there is a declining trend in NC economy(I need to do some analysis on that front) which will definitely have an impact on the house prices...

Housing Crash - Bubble Graph vs Trend Line

By now, there are hundreds of articles available in the net which explains the current financial mess across the globe. Given that one of the root causes is housing depreciation , I was going through some data from Case-Shiller index on housing and did some simple plotting excercise.

Surprisingly enough I found that from January 2000 onwards almost all of the cities for which this index is maintained started spiking up. Look at the graph for Los Angeles, San Francisco, Washington DC & Chicago and see their spikes. It continued going up erratically till maybe January 2006.

Interestingly, note that for Charlottle, North Carolina there was no spike and
looking at the graph you can tell that pretty much till January 2000 it represented
what is called a "Trend Line" in statistical terms for all the city indices. It continued to move up steadily from January 2000 till now. From January 2006 onwards all the other city indices seem to have fallen off the cliff and trying to reach the Charlotte line, which seems to me a very interesting fact.

So, can we conclude that the data for Charlotte truly represents the US City trend for the years for which Case-Shiller index has been maintained? When the rest of the country picked up the housing boom what happened in Charlotte which kept it as a trend line and not to catch up with the rest of the country? Charlotte was also home to Wachovia which ultimately got bought over by WellsFargo and they had a mounting mortgage loss. This seems contradictory to me since the Case-Shiller index does not show the spike & ultimate drop of housing prices in Charlotte. So, does it mean that Wachovia's big mortgages were all outside of Charlotte or even the state of North Carolina? On the contrary, San Francisco based WellsFargo did not leverage themselves too much and is able to stay steady in this financial storm even though San Francisco and greater bay area have been impacted by the housing crisis.
These two cases show us that in one of them a bank is affected but not housing market and in the other bank is not affected but only the housing market is affected.

Also, given the nature of the graphs can we say that the rest of the cities will now try to reach the trend line which is represented by Charlotte data and which means the house prices will continue to go down in most of the cities....

All of this just hypotheses based on the information at hand and who knows what is actually going to happen in the next 1-2 years.

Salute to American Democracy

My salute to American democratic system given the election of President Obama. I cannot see this happening in any other country in the whole world.