heading to the fiscal cliff, home price indexes, and a deconstruction of new home sales for November…

    with few reports and several bloggers taking the holiday week off, it was probably the slowest week of the year in the blogosphere…and even though it was widely publicized that obama cut his Hawaii holiday vacation short on Wednesday and came back to Washington to negotiate a fiscal cliff deal, there were few others in Washington to negotiate with; House republicans held a telephone conference call on Thursday afternoon when Boehner decided they would reconvene congress at 6:30 PM today (sunday), just in case the Senate had anything they could vote on…and although obama has called for a vote on a simple stop-gap bill to extend the bush tax cuts on those earning under $250.000, the consensus among the budget wonks is that it is way too late to formulate a major deal in legal language and have it scored (ie, mathematically determine its effect on the budget) and pass it before the year end cliff deadline arrives at midnight on the 31st..but even assuming that we go over the “cliff”, it’s certainly possible that some kind of bill could be passed during the first few weeks of the new year (with a new congress as of January 2) that could either be applied retroactively to the 1st of the year, or extend all of the expiring tax cuts and suspend the spending cuts for a few months while a more comprehensive deal was being worked on…moreover, it’s not just the sequestered spending cuts to defense and roughly thousand other programs and the tax increases resulting from the expiration of the Bush tax cuts, payroll tax cut, and alternative minimum tax that we’re facing; in a letter to Senate and House leaders on Wednesday, Geithner informed Congress that the debt ceiling would also be reached on December 31st, which is sooner than most had expected…while the Treasury has a bag of accounting tricks they can use to avoid being in violation of the debt limit, those will likely only buy the country another month or two before a new limit be allowed lest a shutdown or default situation arises; and of course, any fiscal cliff deal involving a roll back of taxes just means the ceiling must be raised higher …then there is a plethora of other legislation which either expires at year end or hasnt been dealt with that will begin to cause trouble the first week of the new year, including the expiring provisions of the farm bill which could lead to $8 milk early in the new year because federal dairy price supports revert to the $7 level of a 1949 statute, and which could also throw much other farm policy into disarray shortly thereafter..we also face the pending expiration of the Mortgage Forgiveness Debt Relief Act; if congress fails to renew this legislation, mortgage debt forgiven in short sales will be treated as income and be taxable in 2013; and if the “doc fix” is not applied, the “Sustainable Growth Rate” provisions of the Medicare Modernization Act (MMA) will go into effect, which will result in cuts, estimated at 27.4%, in payments to physicians treating patients under the program…the pie graph we have included here is a general representation of the year end actuated policy changes normally included in the “fiscal cliff” metaphor, based on Economic Policy Institute data posted at the WaPo wonkblog…reading clockwise, the large blue wedge includes those expiring tax cuts, including lowered estate taxes and special treatment for capital gains and dividends, first passed during the Bush administration, the red wedge is the increase in taxes that will be imposed on upper middle class taxpayers as the result of the Alternative Minimum Tax, which is usually adjusted annually for inflation to limit it’s reach; the green slice represents the expiring payroll tax cut, not even mentioned in the negotiations, which will increase payroll tax withholding of all income below $113,700 by 2%; the purple slice is a catch-all for the dozens of sunsetting special interest business tax breaks that expire at year end; the thin light teal wedge are low income tax cuts that were part of the 2009 stimulus, including the Earned Income Tax Credit and the Child Tax Credit; the orange wedge represents the spending cuts known as sequestration, half to defense, half to other programs, imposed by the Budget Control Act; it’s shown as costing $78 billion, but the correct figure would be $109.4 billion for 2013, as it’s the first installment, less saved interest, of the $1.2 trillion in cuts imposed by that Act over the next decade; the light blue slice represents the expiration of the remaining Federal unemployment rations, and the thin pink wedge indicates the aforementioned medicare doc fix…and not included in our pie chart but included in some descriptions of the fiscal cliff are also new taxes imposed by the Affordable Care Act (Obamacare) and the Health Care and Education Reconciliation Act…and in addition to these fiscal cliff related items, there have been several other major changes proposed by the parties negotiating for a “grand bargain” on the budget, including a cap on or elimination of certain itemized deductions, including those for charity giving and the mortgage interest deduction, the increase of the medicare eligibility age from 65 to 67, and a change in the method of computing cost of living increases for social security and other programs that would amount to a cut in benefits over time

    one fairly widely followed report that was released this week was for new home sales for November from the census bureau (pdf)…like all census reports on housing, this report incorporates a large margin of error, which you’ll almost never see included in media reports; to explain this, we’ll deconstruct the opening statement from the report: “Sales of new single-family houses in November 2012 were at a seasonally adjusted annual rate of 377,000, according to estimates released today…This is 4.4 percent (±16.8%)* above the revised October rate of 361,000 and is 15.3 percent (±18.7%)* above the November 2011 estimate of 327,000“. reading the explanatory note at the bottom of the first page clearly tells us that what “4.4 percent (±16.8%)*” means is that the census bureau is 90-percent confident that the change in new home sales between October and November was between an increase of 21.2% and a decrease of 12.4%, or that they’re fairly confident that the number of new homes sold in November was at a seasonally adjusted annual rate of between 316,236 and 437,532; not anything that should be reported as if it was certain…in fact, by using (±18.7%)* on the annual percentage gain, they’re indicating they cant even be sure if sales this year are higher than last year or not.,.however, as census revises previous months sales figures over 3 months, a longer term range of activity can be seen; included below are two of bill mcbride’s longer term graphs on this report; on the left we have new home sales since 1963; the spike in 2005 and subsequent slide from 2006 to 2009 is evident, as is the low current level of sales, which even includes sales of homes not yet under construction…and in the bar graph on the right, each month’s actual sales from 2005 to 2012 is represented by a colored bar; with year being this year; actual new home sales for November were estimated by the Census to be 27,000, the lowest since the 23,000 revised figure of last january; the seasonally adjusted estimate of new houses for sale at the end of November was 149,000, which was reported as a 4.7 month inventory; the median sales price of new houses sold in November was $246,200, and the average sales price was $299,700…
    New Home Sales, NSA New Home Sales

    we also saw the release of a couple home price indexes this week, including the popular Case-Shiller Home Price Indices for October (pdf), which are actually the average of the closing prices on repeat sales of single-family homes for August, September, & October…although both the 10 city composite and the 20-city composite indexes posted seasonal 0.1% declines in October from the index levels of September, the indexes both posted larger percentage gains on a year over year basis; 3.4% for the ten-city index and 4.3% for the 20 city index, with the composite 20 now up 5.4% from the cycle low set in March, but still 30.3% below the prices of June & July of 2006; while the 10 city index is up 4.8% from the low, and 31.0% below the 2006 peak….the price indexes for 18 cities are higher than they were a year ago and 19 of the 20 cities are showing a better year over year price change than they saw in September..the largest one year price index increase was that of Phoenix, where prices were up 21.7%, followed by a 10.0% gain in the home price index for Detroit; only two cities saw lower prices than a year ago; Chicago  where prices fell 1.3%, and New York, where prices slipped 1.2%home prices fell in 12 of the 20 cities in October compared with September; on a month over month basis, home prices in Las Vegas scored the largest increase, up by 2.8%; the largest monthly price declines in this report were seen in Chicago, where home prices fell 1.5%, and Boston, where prices were off 1.4%…with this report, Las Vegas prices finally recovered to their Jan 2000 level, with the index for that metro area at 100.14, leaving the Detroit index at 80.07 and the Atlanta index at 95.86 as the only city indexes below the 2000 benchmark of 100.00the chart above from zero hedge shows the Case Shiller Composite 20 in red, with the seasonal adjusted index in blue from it’s inception, with the index set at 100 in January 2000…both SA & NSA Composite 20 indexes have rebounded to price levels first reached in 2003

    House Prices month-to-month change NSA the other home price index released this week was from LPS (Lender Processing Services) and quite coincidentally, the national LPS Home Price Index for:October (pdf) was also up 4.3% year over year; however, unlike the Case Shiller index, LPS uses October closings only, adjust prices to market for discounted short sales and foreclosures sales, and is not seasonally adjusted; it is, however, a repeat sales index that includes home prices as of their transaction dates every month for each of more than 15,500 ZIP codes; hence, the LPS also includes price indexes by state; for October, the states showing the greatest home price gain at 1.2% were Maryland and New York; prices for the District of Columbia were up 1.4%; the greatest price declines were in Alaska and Wisconsin, where home prices slid 0.4%; on a year over year basis, prices in Arizona were up the most at 14.9%, while home prices in Connecticut slumped 1.3%the LPS national index ended October at $266,000, 22.5% below it’s June 2006 peak, and the month over month gain was 0.3%…in another home price index, a week earlier, FNC reported that their Residential Price Index showed that non-distressed prices increased 0.4% from September to October, and were up 3.7% from a year earlier; and even earlier, the CoreLogic Home Price Index, which is used as the benchmark for the Fed’s Flow of Funds and other measures of household wealth, showed a 6.3% price gain year over year for October in their national index, which excludes prices received for distressed property, while on a month-over-month basis, home prices decreased by 0.2 percent in October 2012 compared to September 2012 for their index which includes distressed sales…the chart to the above right here, from Bill McBride, shows the unadjusted monthly change in the Case-Shiller in red, and the unadjusted change in CoreLogic prices in blue, since 2009; you can see that even when home prices were declining, they still rose yearly in the summer months; now, even when they’ve begun rising again in response to low interest rates, they have started to decline seasonally as the weather becomes unconducive to home sales…Robert Shiller, co creator of the index, believes that even with the Fed stimulus, Zillow’s forecast of a 1.3% annual real price appreciation could be too optimistic

    we’ll include two more HPI related graphs from Bill McBride below; the graph on the left shows the price index declines from the peak at year end from December 2007 and through October 2012 (in red) for each city included in the Case-Shiller indices (click on graph for larger view); while Las Vegas and Phoenix, the cities with the greatest price declines overall, are well off their bottom, home prices in New York and Chicago are still near their lows…the graph on the right shows three home price indexes adjusted for inflation using the CPI less the shelter component; the blue traces the inflation adjusted price levels of CoreLogic index; the yellow traces the seasonally adjusted Case-Shiller national index, and the red traces the seasonally adjusted Case-Shiller composite 20; in real terms, the CoreLogic index is at the price level first reached in January 2001, the Case=Shiller national HPI prices are back to mid 1999 levels, and the Composite 20 reflects prices first seen in July 2000…
    Case-Shiller Price Declines Real House Prices

    (the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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