Case on the Latest Case-Shiller Housing Numbers – In Verse!


Making SenseKarl ‘Chip’ Case of the Case-Shiller Housing Index has long been among our most treasured sources. Today, he graces us with more of his music — the muse of poetry having inspired him to write on the occasion of this month’s Case-Shiller numbers, reported here earlier in the week.

Here is his own introduction:

The following doggerel provides a trip through the events that led to the great housing bubble of the mid 2000s. The S&P Case Shiller Indexes through July 2011 were released this week. The new numbers show a flat market, a lot better than falling sharply. The month over month numbers for the July composite show July over June up 0.9 percent non-seasonally and 0.0 percent seasonally adjusted.The little engine that could.

Reflection on the Housing Market: Part II

By Karl E. Case


For the last ten years we have shed many tears
       Living through a recession

The economy’s broke and it’s not a joke
        When we talk of another depression

Fifteen million without a job
        Foreclosures and banks that fail

401ks became 201ks
        And everything’s up for sale


How can it be?  What didn’t we see
        That led to all of this trouble?

There is little doubt that the proximal cause
        Was a bursting housing bubble


But other than that who can we blame?
        And what do they lament?

Millions of people contributed to
       This hundred year event


For me it began in ’76
        With a house on Cleveland Road

At 54 thousand, I thought it a lot,
        For a small three bedroom abode

But 10 years later that very same house
        Would sell for four times the price

I was glad that I bought…I remember the thought
        “this may not be fair but it’s nice”


In Boston alone, that boom created
        100 billion in wealth

We spent more, saved less, and I have to confess
        It was good for our mental health

We had to know that it couldn’t go on
        Someday prices would fall

We knew there were risks – to ourselves and our fiscs

       If those prices were ever to stall


It all began in 2001
        911…the bubble

The Fed had to act because of the fact
        A recession would mean big trouble

So the Fed Funds Rate, sitting just below eight
        Was cut to under two

And you had to  know with rates so low
        That a refi boom would ensue


The  volume of mortgages written back then
        Stunned imaginations

In a single quarter in 2003
        A Trillion in originations!

But something happened late that year
        That caused long rates to rise

And that was the end of the refi boom
        It came as quite a surprise


With refis gone so were big fees
        But banks still had money to lend

And the search for buyers to fill the gap
        Seemingly had no end

The Fed kept pumping through 2005
        To keep short rates very low

And Greenspan gets a share of the blame
        His halo has less glow


Of course the key for all to see
        Was a robust housing market

Buyers could borrow lots of cash
        And a house was a good place to park it

A summer home… a new big house
        No one seemed to care

Homes were made of bricks and land
        The value would always be there


It didn’t matter what rate you paid
        Or what you made in a year

For a while liquidity led to stupidity
        “just sign and see the cashier”

High LTVs* and Option ARMs
        Negative ams* and more

2-28s with teaser rates
        And ridiculous FICO scores


Competition was the force
        That made the music play

As long as prices didn’t fall
        Everything was OK

People could always sell their house
        For more than they had paid

Defaults and foreclosures stayed quite low
        And lots of money was made


Fannie and Fred were always ahead
        Then Countrywide got in the fray

Then Lehman and Merrill and Goldman Sachs
        Couldn’t be kept away

You can guess that MBS
        Helped make the trading brisk

Investors thought that the paper they bought
        Was tranched with well-measured risk


To that add leverage and default swaps
        And then house prices fell

“Smart guys” got hosed as the risks were exposed
        And that was the closing bell

The very first city to see the drop
        Was Boston in 2006

Then one by one they began to slip
         Leaving us in a fix 


We tried the tax credit which seemed to work

       For a few months the markets came back

But when it expired the markets got mired
         Resuming their downward track   

The inventory of unsold homes
        Still continued to grow

And we’re hardly building any new homes
       With starts at a 50-year low


A number of problems remain as risks
        As the markets begin to turn:

The number of loans that still need to be marked
        Is making stomachs churn

Fifteen million who want to work
       Don’t have jobs today

And slow is the pipeline of loans in default
        Since no one wants to pay


In the longer run a lot depends
        On the rate of household formation

That depends in part of course
         On the rate of immigration

It also matters what kids do
         Like living with Mom and Dad

Or doubling up till they get a job
          To pay for their very own pad


Now there’s talk of a double dip
          The recovery is in a stall

Consumers are down and beginning to frown
         Jobs haven’t come back at all

The Euro is falling, the banks are appalling
         As we wallow in bad sovereign debt

The Europeans are asking aloud
         Really….how bad can it get?


The guys at the Fed have repeatedly said
        That their mandate includes employment

But with rates at zero no one’s a hero
          No weapons are left for deployment

QE1 was lots of fun
          Then along came QE2

We did the “twist” and we took on more risk
           Not knowing just what they would do


So now we come to the end of this ode
        Without much to say for certain

I hate to say, that’s where we are
        Not beginning nor final curtain

The truth of the matter at the end of the day
        Is that markets will make you humble

Just when you think that it’s time for a drink
        They will turn and fortunes will crumble


That free markets work to provide what we want
        is a notion that’s not in dispute

The problem is that once in a while
        Markets overshoot

Of course there is greed and there is a need
        For moral hazard and rules

If a player has no skin in a game
        The rest of the players are fools


Politicians, of course, are starting to shout
        That they want more retribution

It’s better, I think, if they used their time
        Helping to find a solution


*-Adjustable rate mortgage

*-Loan-to-value ratio

*-Negative amortization mortgages