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.
6 comments:
This actually is useful data - well done. Look at the undershoot in the 90's for the major cities relative to NC.
Good job, I found it useful and eye openning. I've been watching home prices for the last year and it's really depressing. Looking at this site over 75% feel there will be another big drop in the coming years. All depressing news for home owners!
http://www.homepricetrend.com
Interesting data.
It doesn't matter where the bank is based at, Wachovia's merger with Oakland based Golden West could be one of the major reasons for their disaster.
I live in Lone Rock, WI where we never had a spike. Oh well, I'll just have to keep enjoying my 3 br 3 bath house on 3 acres that is only worth $150K. darn.
Historically, home prices have risen at the same rate of inflation, 3-4%/yr. because wages have typically risen with inflation. Since 2000, wages have been stagnant have have not appreciated with inflation. Although the NC doesn't show bubble price characteristics like the other cities shown, it's trend does not follow incomes, which is the real driver of home prices.
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Expect even NC to have declining home prices in the coming years if not only to correct to incomes, but also due to the declining economy.
Wachovia is in trouble because they bought Golden Coast - California real estate company. And they bought them on a peak.
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