Coronavirus Pandemic – How the Pandemic has Impacted the Major Housing Markets

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The Phoenix housing market continues to be the standout leader with 12% growth since Jan-2019. Boston, Los Angeles, and Miami have also outperformed the national average. On the other hand, New York and Chicago remain the laggards, flatlining for the last 18 months. 

Despite the statutory forbearance (in place until 12-31-2020) and contrary to the massive media hype, the national average has shown marginal growth, inching up a mere 1.3% in 2020. FYI -- this analysis is based on Case-Shiller monthly indices (published today), which are the most widely-watched and followed housing metrics in the analytics world today.

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The above correlations matrix nicely summarizes the market interactions. Since Phoenix, Boston, LA, and Miami have been moving up in tandem, they share very high colinearity (correlation coefficients above 0.90) among themselves. In contrast, they have much lower correlations with Chicago and New York as the latter have stagnated. 

Likewise, considering Chicago and New York have flatlined, they have the highest collinearity (0.9187) between them. 

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The above graph portrays the competition between Phoenix and New York -- the best and worst-performing markets. While the Phoenix market has produced near-perfect linear growth, surging steadily from 188 to 210, the New York market has moved sideways, remaining range-bound between 200 and 205. 

Given the most recent trend, New York must stay above the 198-200 support level, breaching which it may quickly spiral down to 190.

Stay safe!

Data Source: 

Case-Shiller Housing index (as of 09-29-2020)

-Sid Som

homequant@gmail.com

Coronavirus Pandemic – How the Pandemic has Impacted the US Housing Market

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1. The above Case-Shiller Composite-10 (the ten largest housing markets) table shows that the composite grew 2.3% in 2019, followed by a growth of 0.9% in the first half of 2020. San Diego has been the frontrunner in both periods. Though Boston performed very well in 2019, its growth retraced a bit this year. While Denver has been a consistent performer throughout these 18 months, Miami has also picked up some momentum this year. On the other hand, the growth rates of Chicago and New York have been anemic, while lately, San Francisco has been flatlining.

2. The Composite-20, which additionally includes major markets like Atlanta, Dallas, Phoenix, and Seattle, produced slightly better growth rates than the Composite-10. The Composite-20 grew at 2.7% in 2019 but has moderated to 1.2% this year. Phoenix has been the standout winner in both time segments, with 6.1% and 4.1% growth rates, followed by Tampa, Charlotte, Cleveland, and Seattle. Overall, the slopes of the curves are very similar, meaning they have moved sideways this year, especially in Q2.

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3. The regression (7/19 thru 6/20) between the strongest and the weakest markets is quite impressive. After moving from 200 to 204 in the second half of 2019, New York flatlined around 205 in the first half of 2020; in contrast, San Diego steadily moved up from 261 to 272 during these 12 months, contributing significantly to indices' growth. The asymmetric growth rates have lowered the r-squared values. 

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4. Though Phoenix outperformed San Diego 8.5% vs. 4.5%, these two markets have been the hottest between 7/19 and 6/20. Therefore, the regression between them is also more telling, perhaps more apparent. They not only share a near-perfect linear trendline, with a high r-squared value of 0.98, but have also much helped the two composites remain positive this year. 

In a nutshell, contrary to the heaps of market reports praising the monthly growth of the housing market, the Case-Shiller indices, which serve as the de facto data standards of the US housing markets, paint a very different growth picture -- one that is anemic at best, save a few pockets here and there.

Stay safe!

Data Source: Case Shiller Housing Indices

Sid Som

homequant@gmail.com

Link to the Book

How did the Housing Market Fare in 2019?

** Intended for New Graduates / Analysts **

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Michael, an Econ graduate with three years of experience as a Housing Analyst, is interviewing for Senior Research Analyst with a major consulting firm.

Question # 1
Interviewer: Would you have combined these two graphs into one? 

Michael: Yes, since they both represent the same data period and considering the value ranges are not too far apart, I would have used one graph, stacking up the lines.  

Question # 2
Interviewer: Why not Y1 and Y2 instead of stacking up the lines on one Y axis?

Michael: As I said, the value ranges are not too far apart to justify the use of Y1 and Y2 axes. 

Question # 3
Interviewer: As far as this graphic presentation is concerned, please name two issues that positively appeal to you. 

Michael: No. 1 -- The Underlying data as it represents Case Shiller indices. No. 2 -- Combining the data tables with the graphs.

Question # 4
Interviewer: Explain the two market trends.

Michael: The trends are very similar. Between January and July, they remained sideways. Since then, they have been trending up in tandem.

Question # 5
Interviewer: Despite having moved in tandem, did one index outperform the other? 

Michael: Yes, the Composite-20 did slightly outperform the Composite-10. While the Composite-10 moved up roughly 5 points, the Composite-20 climbed roughly 6 points, thereby marginally outperforming its counterpart. 

Question # 6
Interviewer: Is there a "hare and tortoise" parallel here?

Michael: Yes, the Composite-10 took a nap in June and July, thus losing the race. In other words, the Composite-10 dozed off in June and July, while the Composite-20 slowly but steadily kept inching higher.

Question # 7
Interviewer: Based on this latest trend how would you characterize the current housing market as an investment vehicle?

Michael: In view of the current reversal to positive trend, I would say this market could be a great investment vehicle for seasoned flippers looking for an arbitrage on fixer uppers.

Question # 8
Interviewer: Are you saying that this is not the right time for a random homebuyer looking for a primary residence?

Michael: Not at all. Anyone with a good time horizon may buy a primary residence at any point of the business cycle. Of course, since the housing market has eclipsed the pre-recession highs, I would caution random homebuyers who have limited or uncertain time horizon. 

Question # 9
Interviewer: How would you advise our community bank clients?

Michael: I would urge them to closely follow the developments in the secondary market, as well as any emerging shifts in securitization practices. Considering the significant run-up in the housing market in last 8-9 years, I would definitely urge them to practice prudent risk management.

Data Source: Case Shiller Seasonally-adjusted Housing Indices as published on 02-25-2020

-- Sid Som, MBA, MIM
homequant@gmail.com

Link to the Book