Case-Shiller Home Price Index decline slows

The S&P Case-Shiller home price index for February 2009 was released today by Standard and Poors. The composite-10 declined 2.11% from January 2008 (last month it declined by 2.55%) and declined by 18.83% from a year ago (compared to 19.39% last month). The composite-10 is now down 31.64% from its peak.

The Composite-10 has now declined at a slower pace year over year for the first time in over two years.  The CME futures market is pricing in a further drop of -12.30% by next February for the composite-10.

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Existing home sales decrease but median sales price is up

The National Association of Realtors released the existing home sales figures for March 2009 yesterday. Sales decreased to a seasonally adjusted annual rate of 4.570 million units in March down from 4.710 million units in February and down from 4.920 million units in March 2008.

The median sales price was $175,200 for March up from $168,200 in February (up 4.16%) but down from $200,100 in March 2008 (down 12.4%).  Months supply was 9.8 in March, up from 9.7 in February.  According to the NAR, distressed properties accounted for just over half of all transactions in March and are selling for 20 percent less than traditional homes.

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Earnings Season

Earnings season is upon us once again.  According to Marketwatch:  "Analysts surveyed by FactSet Research on average expect earnings at S&P 500 companies to be down 35.9% from the year-earlier quarter. Those surveyed by Thomson Financial expect earnings to be down 36.6% from the year earlier." 

In the fourth quarter of 2008, earnings were negative as a whole for the first time for the S&P 500.  On a bottom up basis, analysts are projecting that continuing earnings for Q1 2009 will come in at $13.00 a share up from -$0.11 in Q4 2008.  They are projecting as reported earnings to rebound to $8.75 up sharply from the stunning loss of -$23.16 for Q4.

Analysts missed the impact the recession would have on stocks.  Just 6 months ago, they forecast that Q4 continuing earnings for 2008 would be close to the all time record reached in Q3 lf 2007.  They forecast that Q1 2009 would break the record. 

A year ago, they also forecast a quick recovery from the drop in continuing earnings in Q4 2007.

Analysts are pricing in that the bottom is in for the recession.

Here is an update on Robert Shiller's S&P 500 graph.  Going back to 1881, the average P/E ratio using the trailing 10 years of real earnings has been 16.34. As of today, the current P/E ratio is 14.82.  Using the historical average, stocks are slightly undervalued.  However, the stock market has traded at much lower levels in the past.  In 1982 it reached 6.82 times 10 years earnings.  In the Great Depression it reached 5.56 and it reached 4.78 in 1920.

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