Saturday, June 2, 2007

The Big Picture | Some More Housing Charts

Barry Ritholtz does it again with this excellent post which contains 4 excellent and easily readable charts on the trends affecting the housing market.

This time, Barry tells the story using pictures without commentary. The charts he selected are excellent and speak for themselves without commentary. However, Barry always adds something to the mix when he adds in his thoughts and perspectives and experience on what he sees in the charts and what it is most likely to mean.

Barry does give us a money quote with these few words to wrap up his post:

Funny thing: The charts tell pretty much the same story the words did: The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.
I do miss the words, so here are copies of the charts accompanied with my ordinary citizen, non-housing-expert comments on what they might be telling us and focusing on the degree to which these charts make best use of best practices for conveying trend results graphically.

This first chart is both interesting and scary. It would have been great to see what the Reset Amounts have been for the past 10 or 20 years rather than just the past 4 or 5 months. If I am reading this correctly, it sure looks like we are into a 12-18 month period with extremely high reset amounts, where a very small percent are for Prime ARM. Note that this chart is originally from Credite Suisse via Lamont Trading Advisers to At These Levels and then to The Big Picture.

Stacked bar charts are often difficult to use to interpret the behavior of the sub components such as Unsecuritized ARMs. Important trend information about these sub factors may be hiding in a chart such as this. My own preference in these cases is to use individual charts for each factor that I consider important so I can understand the individual behavior AND the composite behavior of all these factors.

This 3 year chart originally from Northern Trust is plain as day. Having the 20 or 25 year chart for this same key factor would have made this even better and clearer and more useful. Some smoothing, maybe a 3 month average could also be helpful here. It's important to note that this chart is based on combining two other factors - the actual total inventory of homes, and the most recent rate of sales of existing homes. For reference, having charts for these other two factors to look at in parallel to this calculated metric would also be useful.

This next chart gives us a nice 20 year view. having a complementary 3 year view would let us look more closely and better understand the very sharp recent spike.

For this next chart, my own preference would be to look at these two factors separately on their own chart first using a 20 to 25 year view.

As a general comment, having a shifting time window for every chart makes things much more difficult on the viewer.

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