The piece is entitled Believe It or Not, Existing-Home Sales Were Up in ’09. Why wouldn’t I believe it? Why wouldn’t anybody? We were supposed to have an opinion on this topic? And a wrong one?
I suppose that if you misunderstood what was meant by the term "existing-home sales," confusing it with the prices for houses, rather than simply the number of non-new houses that changed hands in 2009, you might be surprised. Through November ’09 the Case-Shiller 20 City was down a little less than 3% for the year. (December hasn’t been reported yet.) That’s a great improvement on the year before, ’08 was down more than 18%, but it’s still down. So, yes, if you thought "existing-home sales were up" meant that prices were up, your befuddlement might have caused a brief bit of erroneous optimism.
Alas, that’s not what it means. The count of houses sold is of great interest to real estate brokers, who make money on each transaction, and of almost no use to anybody else. True, there is a rough and unreliable relationship between sales volume and prices. (See chart here.) It is enough that if we had no price indexes we might use sales volume as one of our tea leaves to help us guess what was going on.
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Imagine that you are in financial distress. You have a mortgage, a car loan, and credit cards, but cannot pay all three. Which gets paid and which gets stiffed?
Obviously, this is a lesser of evils situation, not an ideal one. Not paying any one of them will have negative consequences. Defaulting on the credit cards will likely result in not being able to use them to buy more stuff. And the other
two loans are secured, so not paying those bills could result in the loss of your wheels or roof over your head.
You might think that since shelter is so important, the mortgage would be the most likely bill to be paid. And since buying more stuff on the credit cards is less vital to a person in financial trouble, you might assume that credit cards would be the most likely to be defaulted on. Having your cards taken from you would suck, but not as much as having your car taken.
Not so. Last week Wallet Pop ran a post by Lita Epstein that looked at default data for these three types of loan. Credit cards do turn out to be more commonly defaulted on than car loans, but not by as much as you might have assumed. 1.1% of credit cards were 90 days delinquent in the third quarter. 0.81% of car loans were 60 days delinquent.
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It is time to revisit a topic we have been looking in on every few months for the past year. I am referring to the government’s program to help people stay in their homes through modifying the terms of their mortgage.
When the program was first announced to great fanfare in March, I observed that nobody outside the Treasury seemed to think it would work. Only two months later I had a little fun pointing out how, even by then, it was pretty obvious it was going to miss its unrealistic goals by at least an order of magnitude. By July I was writing about the inevitable finger-pointing that followed the revelation that a program nobody believed in was not, in fact, working very well.
Of course, the Home Affordable Modification Program is still running, and still bravely defended by administration officials with a straight face. And they sure are brave. Last week The New York Times told us that U.S. Mortgage Plan Aided 7 Percent of Borrowers. That figure, apparently, refers to 7 percent of the 853,696 borrowers enrolled in the program, not 7 percent of all borrowers.
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The start of a new year is a great time to pause, consider the big picture, and predict the future. So it’s time for me to update a chart I first ran a while back on house prices.
This is adopted from Robert Shiller’s work. He chained together a collection of house price indexes covering different periods, ending with the Case-Shiller Index Composite from 1987 onwards, and then adjusted for inflation.
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As winter rolls in and the season of office parties fades into the season of empty offices, it is time to pause and take stock. It is hard to imagine that we will be looking back on 2009 as the good old days any time soon, but things could certainly have been worse.
The end of 2009 also marks, more or less, the end of the first year of this blog. So it makes sense to review the year by reviewing the year in the blog. In the next few posts I will be highlighting a few general themes that emerged as the year went on. Today it is the most obvious of topics, The Great Recession.
What set off the GR was best discussed here at Bad Money Advice in a book review I wrote (in two parts) of the probably now forgotten The Wall Street Journal Guide to the End of Wall Street as We Know It. I meant to do more book reviews when I started this blog.
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I suppose that if you misunderstood what was meant by the term "existing-home sales," confusing it with the prices for houses, rather than simply the number of non-new houses that changed hands in 2009, you might be surprised. Through November ’09 the Case-Shiller 20 City was down a little less than 3% for the year. (December hasn’t been reported yet.) That’s a great improvement on the year before, ’08 was down more than 18%, but it’s still down. So, yes, if you thought "existing-home sales were up" meant that prices were up, your befuddlement might have caused a brief bit of erroneous optimism.
Housing, Media | Frank Curmudgeon | 
February 1, 2010 12:59 pm | 
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