Matrix Blog

Showing Results for "case shiller"

Curvilinear MPG With Benefits, While Confidence, CSI and OFHEO Meet Expectations

June 24, 2008 | 11:08 am | |

…and those expectations are continued weakness.

The focus on oil and fuel efficiency of cars seems to be taking over the BBQ conversation from housing these days.

the relationship between consumption and m.p.g. is curvilinear, and there is a greater savings at lower m.p.g.’s. Over 10,000 miles, the 28 m.p.g. car uses 198 fewer gallons than the 18 m.p.g., more than double the savings of the 50 m.p.g. car compared with the 34 m.p.g. one.

With this new measure, the researchers suggest, consumers would more easily see the value of swapping an inefficient car for one that is even just modestly more efficient.

Speaking of curvilinear relationships, check out this recent ad in Craigslist. A friend of mine is having great difficultly finding an apartment. Apparently this landlord has the answer.

Today is just full of fun announcements…

Isn’t it summer Being outside, enjoying the sunshine? Optimism? Consumer Confidence plunged to a 16-year low in May.

As expected, the S&P/Case Shiller Index showed continued decline in April, the beginning of the “spring market” when sales activity is most robust. In fact, it showed a record decline for its 20 year history. I think there was hope brewing that the housing market is approaching bottom. It’s hard to see that with a 15.3% annualized decline and a 17.8% decline from peak.

Of course, OFHEO released their numbers today as well and guess what? OFHEO shows the housing market is declining 4.5% annually (over the same period that Case Shiller measures). That’s because CSI includes the entire price spectrum and OFHEO excludes non-conforming mortgage sales. It is interesting how much the data gets skewed by the high end market. Based on the difference between these two indexes, the high end is tanking (no pun intended).

Tomorrow, the FOMC announcement is on tap. The futures markets are betting on no change in rates. I would think further rate cuts will hurt the economy by empowering inflation. Rate cuts in the past year have not helped housing in any measurable, even curvilinear way.

At least not enough to get pumped up about (sorry).


Tags: ,


Confidence Has Left The Building

March 26, 2008 | 1:14 pm | |

Guess what? People don’t feel as good with their lot in life when the value of their house falls. What a concept. Professor Shiller wrote a position paper on the Wealth Effect which tied the power of consumer spending more closely to housing than stocks.

The Conference Board released their index and it has reached the level seen only during recessions. It is at its lowest level since 1973. Incidentally, I remember walking to school in 1973 (I wasn’t old enough to drive or shave) seeing long lines at the pump and the conventional wisdom said there was only 20 years remaining for oil.

The S&P/Case Shiller Index has only one market area showing positive price growth yoy (New Yorkers: remember that CSI excludes condos from it’s metro price calcs) – Charlotte, NC and the declines across their other 19 markets are growing and some are approaching 20%. My former firm Radar Logic will be releasing their monthly report next week and I expect it to say show something similar.

OFHEO, which is scrambling to remain relevant, has converted to monthly releases to compete with the CSI index. OFHEO shows prices for January were off 3% from a year earlier. OFHEO uses a similar methodology to CSI but only tracks conforming mortgages. The current threshold is $417,000, which severely underrepresents certain higher priced housing markets on the east and west coasts. I’ll have to look into how OFHEO is going to track housing stats after September 1 when the temporary conforming mortgage loan limits increases to a max of $729K. Also, it is important to only look at their purchase index since they, for some unexplainable reason, include refinance market value estimates in their data as well. We now know that appraised values during the housing boom were systemically inflated.

Of course this negative news is offset by the NAR press release (which is patently misleading) covering existing home sales:

One bright spot is that falling home prices may be beginning to spark buyers’ interest. The National Association of Realtors said earlier this week that sales of existing homes rose in February.

Please.


Tags: , , , , ,


[Rank Forecasts] Rankled By Rankings, Prognostication At Its Finest

March 24, 2008 | 12:41 pm | |

I linked to a story about forecasters a few days ago but it’s still got me confused.

These days, housing prognostication is big business (I do a little prognosticatin’ myself). There are a few people that I watch closely and in fact, several that I fawn (is that a word?) over. But I was taken aback by the USAToday/Atlanta Fed’s rankings of the most accurate forecasters out of a pool of often quoted economists.

It was done anonomously so the analysts would not be swayed by personalities they were covering:

Atlanta Fed economist Tao Zha and Fed programmer Eric Wang analyzed the quarterly predictions to determine the most accurate forecasters. Zha and economists Robert Eisenbeis and Dan Waggoner had previously developed the methodology. Rather than assessing the accuracy of each forecast variable separately, as is commonly done, the economists used statistical methods to assess the joint accuracy of the predictions. The Atlanta Fed economists did not know the identities of those they were evaluating.

David Berson, formerly of Fannie Mae and now of PMI, has long been one of my favorites, as well as Mark Zandi of Economy.com. Nariman Behravesh of Global Insight and Ethan Harris of Lehman are on the list and I enjoy reading their work. The remainder on the list I am not familiar with.

However, several prominent economists were not ranked, and I am not sure what that implies:

David Rosenberg of Merrill Lynch, a bear, pumps out a lot of interesting work and I enjoy hearing him speak often on Bloomberg.

Robert Shiller, perhaps the most widely quoted economist out there, was not on the list. He is the author of a best selling book and co-creator of the Case Shiller Index.

Nouriel Roubini, an often quoted economist for bloggers and the media, is perhaps the most negative forecaster out there, yet he is a terrific public speaker (just make sure you are euphoric before you hear him speak).

What caught my attention was the inclusion of Lawrence Yun of NAR as the 5th most accurate forecaster. I found that shocking, actually. I am sure he is a nice person and works very hard, but he has made some of the most amazing comments about the state of the housing market each month that have nothing to do with the data that is released. Perhaps that’s the problem. It’s not the data (that was analyzed) it’s the delivery of the message.

Here’s an example.

Today, NAR’s Existing Home Sales stats were released:

Sales of existing homes increased in February and remain within a fairly stable range, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.9 percent to a seasonally adjusted annual rate (1) of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007. The sales pace has been in a fairly narrow range since last September.

Here are NAR’s hard numbers.

Lawrence Yun, NAR chief economist, said the gain is encouraging. “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said.

How can you issue a press releasing relying on the change between January to February to be a sign that the market is improving?

Sales are generally slowest in January. The change in sales from the prior February was down 23.8% and prices over the same period are down 8.2% yet the headline says the market is stabilizing?

Please tell me what the basis is for that headline in the facts that were presented or any external changes in the mortgage/credit markets and the economy? Am I missing something here?


Tags: , , , , ,


A New York Story: Pop Goes The Country

September 18, 2007 | 10:11 am | | Public |

The bi-annual real estate issue of New York Magazine had been talking about a crash since 2003. However this year, they apply a more reasonable discussion to the burning question: Why is New York different and how long will it last? (since their new owners took over a few years ago, editorial content has returned the magazine to “must-read status”).

Aside: Of course I love the fact that the average sales price for Manhattan 2Q 2007 presented in the Prudential Douglas Elliman Manhattan Market Overview that my firm authors of $1,333,316 is on the cover (something about loving numbers).

While I am not in total agreement with all the content, it is a refreshing approach because the article tries to present both sides in a best and worst case scenario format. The take away is weighted toward the pessimistic view.

There is discussion of

Hyman Minsky’s ingenious model of asset bubbles, economic stability breeds riskier and riskier investors: First come the “hedge borrowers,” who play with their own money; they are followed by “speculative borrowers,” who have enough cash flow to keep the lender at bay but not enough to cover the principal investment, and finally “Ponzi borrowers,” who are, as the name suggests, borrowing to refinance other debts they can’t meet, in the wild hope that the market will keep climbing.

Of course, New York had very little speculation during the New York housing boom so this applies more to borrowing habits of market participants.

The article references economists I admire and have quoted in the past: Joseph Gyourko, Christopher Mayer, Todd Sinai, Edward Glaeser, Robert Shiller and Nouriel Roubini (whenever I am feeling too optimistic) plus several others. Brad Inman coins the phrase: “Irish Effect.” They also included my friend Noah Rosenblatt, who runs Urbandigs.com and is someone I recently discussed the housing market for hours after midnight on the tarmac of Atlantic City’s airport on a grounded jetBlue flight from the recent San Francisco Inman conference (how cool is that?).

Worst Case: In this scenario, a full-fledged credit crunch rips through the system. The August employment figures, showing no growth for the first time in four years, are the beginning of a serious downward trend. The economy heads for a hard landing, and an all-out recession ensues.

Best Case: In this instance, the current liquidity problem is contained by the end of the year. Employment figures pick up in September. Global growth continues.

A correction to the article is needed: The widely quoted Case Shiller Index doesn’t include co-op and condo sales as indicated in the article, which is 96.9% of the Manhattan sales market, nor does it include new development and foreclosures.

This just in: Lehman’s net declines, but less than analysts expectations.


Tags: , ,


[Getting Graphic] Getting Real Nominal On US Housing

August 27, 2007 | 12:01 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related images(s).

David Leonhardt of the New York Times, does a very cool breakdown of the Nation’s housing markets, to prove incorrect the mainstay argument that housing prices, based on OFHEO numbers (the official government stats), have not shown an annual decline since their inception in 1950. Because OFHEO excludes all transactions with non-conforming mortgages (currently over $417,000), a large swath of data is excluded, especially in the coastal cities where housing prices are higher.

It should be pointed out that OFHEO also includes the appraised value of refinance transactions, which can be the majority of the sales data captured by Fannie Mae and Freddie Mac in a certain period of time.

He instead relies on the numbers provided by Case Shiller which do not exclude non-conforming loans like OFEHO does (however, Case Shiller does exclude new construction, condos and foreclosures, which have been key components of the housing market boom of the past 5 years).

David does a wonderful job at explaining the methodology in the video and the interactive graphics are amazing. He emphasizes using inflation in the presentation of housing prices.

Click here for interactive graphic and short video on the US housing market.

Source:NYT



Tags: ,


[List-o-links] At The Golden Gate: I Left My Heart In New York

December 4, 2006 | 11:35 am | |

For the next two days, my posts will be a bit sporadic. I am in San Francisco for business. Its one of my favorite places. The weather is perfect but I am desperately trying to stay on New York time. Its hard to get up at 3:30 am PST, no matter how you try to convince yourself.

Here’s a few links that may be of interest.


Tags: ,


[Bubbletheory] Lets Not Re-write History

May 10, 2010 | 12:00 am | |

I have been coming across what I believe to be somewhat weird rear view looks at the credit/housing bubble we just went through from some well respected voices. I’m thinking there is perhaps an academia disconnect from the front lines.


[click to open article]

Casey B. Mulligan is an economics professor at the University of Chicago writes “Was it really a bubble?

According to the bubble theory, for a while the market was overcome with exuberance, meaning that people were paying much more for housing than changes in incomes, demographics, technology and other basic factors would suggest.

But why would the blue line need to be where it is? Housing prices are stickier on the downside and the slope should not form a bell curve as the drawing suggests. It should be a lesser slope and drawn out over several years, shouldn’t it? And wasn’t that the whole point of the stimulus plan in reference to the first time home buyers’ and existing homeowner’s tax credit? It stimulated sales activity and as a result, artificially pushed sales price levels sideways.

Take a look at my colleague at Westwood Capital, Dan Alpert’s chart showing the exuberance of housing prices. You can slice it and dice anyway you want but THAT’s a bubble.


[click to open article]

And one of my favorite economist/writers Edward Glaeser writes “What Caused the Great Housing Maelstrom?

If the easy credit hypothesis is correct, then we can take comfort in the thought that we understand the great housing convulsion, and we can start pointing fingers at those institutions, like the Federal Reserve System, that play a role in determining interest rates.

He and his colleagues through their research seem to be saying that low interest rates and high lending approval rates don’t explain enough of the rise in housing prices.

In all due respect, I don’t know exactly how they proved their points empirically but this research seems to be a bit disconnected to what most of us observed on the ground during the boom itself.

For example, a five percent increase in loan-to-value ratios is associated with a 2.5 percent increase in prices, and loan-to-value ratios rose by less than five percent during the boom.

That seems like a very low ratio to me. As appraisers we could clearly see the pressure we were under to hit the number for the mortgage approval and that most people were placing 5%-10% down. I contend that credit was easier than anytime in modern history and that combined with interest rates kept on the floor from late 2001 to mid 2004 caused a frenzy of demand or as Professor Robert Shiller characterizes it as “Irrational Exuberance.”

This was a credit bubble and that housing was merely a way to keep score. Perhaps I am not following their logic but having lived through it and saw the lending environment first hand, its hard to imagine this whirlwind of the past 7 years was not a bubble of some kind.


Tags: ,


[Amherst Securities] 7 Million More Foreclosures To Pressure Housing Market

September 25, 2009 | 11:22 am | |

In a decidedly bleek report on the state of foreclosures, Amherst Securities Group LP issued a report that concluded:

The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate. This creates a huge shadow inventory. We estimate this housing overhang at 7 million units, 135% of a full year of existing home sales. We look at the impact on a number of local markets, then look to the causes of the overhang: (1) transition rates are high, (2) cure rates are low and (3) loans are taking longer to liquidate. We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary.

The key issue is the fact that the number of housing units going into foreclosure is much higher than the amount being disposed. Of course all real estate is local and the report creates a compelling case study using listing data from Trulia.com and the Case-Shiller 20 City Index coordinated with the foreclosure process.

Amherst was the key source for the informative “Mortgage Meltdown” story back in December on 60 Minutes. They teamed up with investment fund manager Whitney Tilson. The 60 Minutes segment is in my earlier post but I also inserted it below.


Watch CBS Videos Online

Tags:


[Sentiment versus Confidence] Dow Jones Sentiment Index Shows Improvement

August 31, 2009 | 11:20 pm | |

Confidence is more right here and now. Sentiment is more forward looking (it gives a snapshot of whether consumers feel like spending money.)

(a lame appraisal analogy would be estimated market value for a bank appraisal (today) versus anticipated sales price for a relocation appraisal (future))

but I digress…
I continue to be amazed with the types of analysis being done with the subjective nature of what is on the consumer’s mind – or in this case, what journalists are writing about:

The Dow Jones Economic Sentiment Indicator

The ESI, which was first published in April, aims to identify significant turning points in the U.S. economy by analyzing coverage of 15 major daily newspapers in the U.S.

The Dow Jones Economic Sentiment Indicator bottomed last November and has continued to edge higher. Newspaper coverage has become more upbeat about the economy (I assume they assume that consumers are sick of reading about bad news), the number of articles expressing either positive or negative sentiment about the economy has fallen now to approaching a third of the level of its peak in October 2008 following the collapse of Lehman Brothers.

A lot of people are drinking the Kool-aid right now.

I find this particularly ironic since the real estate industry has long blamed “the media” for the making real estate correction worse by “piling on.” However, I find the coverage today to be overly positive from sloppy interpretation of the 4 housing price indices: Case-Shiller Index, NAR Existing Home Sales, Commerce Dept’s New Home Sales and FHFA HPI, showed positive signs.

Actually all indices showed less negative results which were discussed excessively positive.

For example, The Conference Board’s recent Consumer Confidence Index was a little more positive:

Consumers’ assessment of current conditions improved slightly in August. Those claiming business conditions are “bad” decreased to 45.6 percent from 46.5 percent, however, those claiming conditions are “good” decreased to 8.6 percent from 8.9 percent. Consumers’ appraisal of the job market was more favorable this month. Those saying jobs are “hard to get” decreased to 45.1 percent from 48.5 percent, while those claiming jobs are “plentiful” increased to 4.2 percent from 3.7 percent.

While the recent Michigan Sentiment Index showed renewed weakness:

Confidence among U.S. consumers unexpectedly fell in August for a second consecutive month as concern over jobs and wages grew.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2, the lowest level since March, from 66 in July. The measure reached a three-decade low of 55.3 in November.

I find the whole thing a bit foggy especially using monthly figures for comparison.

Further reading on this.


Tags: , , , , , ,


[Westwood Capital] Only 16.9% To Fall, Land Bubbles

August 25, 2009 | 12:21 pm |

Westwood Capital, LLC, an investment bank, led by founder and managing partner Dan Alpert, projected that housing prices would decline by 28.2% from peak based on the Case-Shiller Index as a benchmark. Arguably pessimistic at the time, the 43% decline that actually occurred was a lot more bleak.

Westwood just released a compelling research piece called Reconstructing American Home Values which suggests we are 75% of the way through the decline.

Here’s a few of the salient points presented:

To firmly return to the upper limits of historically justifiable levels of stabile prices relative to rents in particular, we believe the Case-Shiller 20 markets must decline, on average (with considerable differences among markets), by an additional +/-16.9% from May 2009 levels.

In the final years of the housing mania of the 2000s, home buyers not only assumed the price they paid would rise to the moon; they paid more than 50% of their homes’ purchase price toward what was effectively a wildly overpriced option on that presumed growth, relative to the portion that could be reasonably attributed to the cost of shelter. They not only massively overpaid that option; they were also leveraging themselves to the teeth to do so. For the entire period from 1997 through the bubble’s peak in 2006, housing prices in the Case-Shiller 20 metropolitan statistical areas rose by a total of 163.8% before inflation, and 107.6% after inflation is taken into consideration!

In other words, in addition to the cost of shelter, the housing bubble was caused by an irrational jump in the cost of an option to purchase a property’s future price appreciation. The report concludes that that the future appreciation portion of the value equation was over valued by at least 50%.

Another point that was brought up related to the fact that the value of land is attributable to what it can be used for. When housing markets rise, it is really the value of the land that rises rather than the value of the improvements.

I also like the discussion on rent v. sales price disconnect that began in 1997.

A big concern going forward is rent deflation, which is already occuring as many “For Sale” properties are becoming rentals due to the lack of demand.

Here are a few of the charts that interest me from the report:


Tags:


[HuffPost] Current Wave of Housing Euphoria May Extend Downturn

July 30, 2009 | 3:02 pm | | Columns |

Here is my latest handiwork for the Huffington Post.

Current Wave of Housing Euphoria May Extend Downturn

The article is below in full if you don’t want to click on the link:

Current Wave of Housing Euphoria May Extend Downturn
Jonathan Miller 7-30-09


The spring housing market is behind us and we are now fully ensconced in summer, able to sit at the beach, sip our drink and watch the waves roll in.

Waves of housing statistics that is.

Seemingly everyone from the consumer to the POTUS has been waiting for a rogue wave that will finally bring some good news on housing. In fact most of us are aching from bad news overload and desperately want good news or at least a temporary reprieve from the bad.

Like the closing scene from the 1973 movie Papillion where Steve McQueen’s character–when trying to escape from the island–determined that every seventh wave was big enough to enable him to float past the rip currents that surrounded the island.

The monthly gauntlet of key housing market reports from the past week show a rising tide of better-than-we-have-heard-in-three-years-news on the state of US housing market.

Here’s a recap:

July 22, 2009 Federal Housing Finance Agency news release headline: “U.S. Monthly House Price Index Estimates 0.9 Percent Price Increase from April to May.” This report reflects sales with conforming mortgages through Fannie Mae and Freddie Mac at or below $417,000 plus the high priced housing markets such as the New York City area that have a $729,750 mortgage cap. Housing markets that rely on conforming mortgages are expected to recover first because the that mortgage market has been the target of recent federal stimulus and bailouts. However the month over month price increase of 0.9% touted in the report headline is the first such increase since February. Although 5 of the 9 regions show a month over month increase in prices only 1 of those 5 regions had an increase in the prior month. In other words, this trend is not very compelling.

July 23, 2009 National Association of Realtors Existing Home Sales report headline: “Existing-Home Sales Up Again” The number of re-sale increased 3.6% in June from May, the third month over month increase in activity. The number of sales was only 0.2% below the level of last year’s activity in the same month. This was largely due the 31% market share of foreclosures, assumed to be purchased by speculators plus the impact of the federal tax credit for first time buyers which expires at the end of November. However, this seasonally adjusted sales 3-peat was also seen at the end of 2006 and the beginning of 2007 before sales activity fell sharply. In other words, this trend is not very compelling.

July 27, 2009 Commerce Department New Home Sale Index headline: “New Residential Sales in June 2009.” This is the report that got everyone excited because of the 11% increase in new home sales month over month and the largest such increase in 8 years. Floyd Norris of the New York Times points out that if you look at the actual number of sales in June, it was the second lowest month of sales on record since the metric was tracked in 1963. In other words, this trend is not very compelling.

July 28, 2009 S&P/Case-Shiller Index “Home Price Declines Continue to Abate.” The 20-City Composite has shown a lower annual rate of decline for 4 consecutive months and 13 of the 20 metro areas posted month over month increases but this is before seasonality is adjusted for. In other words, we expect prices to rise in the spring if they are going to rise at any point during the year. If seasonality is factored in, month over month gains evaporate. In the New York City region, the 20-city composite index doesn’t cover co-ops, condos, foreclosures and new development, more than half the sales activity. In other words, this trend is not very compelling especially after considering that along with the most recent month in the report, the index has declined year over year for 29 straight months.

In a stroke of irony, big media, which was on the receiving end of the real estate industry’s “blaming the media” ire for the past three years–as responsible for making the downturn worse–has taken the positive outlook and run with it. Nearly every major news outlet has begun to report each of these reports by cherry-picking and overweighting the positive elements results in a downright giddy tone. Over the past week, the general sentiment in news coverage is clearly moving towards the positive but mainly confined to the headlines.


As a reporter once told me (and I am paraphrasing) “Negative news only sells for so long – consumers eventually stop reading it as they become become numb to it.”
Perhaps this is best exemplified by yesterday’s kind of thin New York Times page 1 story on housing:

“3-Year Descent in Home Prices Appears At End.”

This was the headline that put me off a bit since the article itself wasn’t very committal to the notion that the housing market has bottomed. Perhaps this is why the web version of the article was titled with a more sedate headline that was more in sync with my view:

“Recovery Signs in Housing Market Stir Some Hope.”

Step back for a second and ask why would the housing market start to improve now to lead the economy?

If more people are losing their jobs and credit remains tight, how can we expect the number of sales and housing prices to over come this. Unemployment is still rising and is expected to continue rising through next year even though the recession could be over right now or close to it. Housing inventory is still high and the number of sales, exclusive of distressed asset sales is still low. Speculators may be on their way to becoming a force again in the market. Mortgage rates are expected to trend higher over the next few years with all the new debt taken on by the federal government. Credit is still very tight, and while there has been some discussion of loosening in mortgage underwriting, banks still aren’t enthusiastic about lending. There appears to be some easing on conforming mortgage underwriting but a chokehold remains on jumbo and new development financing.

Here’s the problem.

Sellers tend to “chase” the market when it is falling, unable to respond to the decline in values as quickly as the market does. If sellers take this positive news too seriously and don’t focus on the realities of their local markets, they may end up being over confident when negotiating a sale, losing the buyer and falling even further behind the market than they would have otherwise, eventually selling for less.

Luxury condo developers and especially the lenders behind them, many of whom are facing stalled projects, could experience a sense of renewed optimism from the recent depiction of the housing market, causing them to miss the market, eventually realizing a larger loss.

So let’s be clear. While I am hopeful that we will see a housing recovery at some point in the future, I’d rather it be real.

In the meantime, I’ll sit at the beach and count the waves.


Tags: , , , , , , , ,


[It’s Freezing Out There] Housing Indexes Take A Back Seat

November 22, 2008 | 1:43 am | |

One of my favorite online columns at the Wall Street Journal is “The Numbers Guy” – by Carl Bialik. He tackles the foggy issue of housing indexes this week, which have entered the mainstream conversation over the past few years. (My firm was nearly acquired by one of the firms in the piece before I pulled the plug as the financial markets began to crack. Phew!)

In “Only One Person Knows a Home’s Value: Its Buyer: House-Price Index Readings Can Be Inflated, Built on Shaky Foundations and Far From the Right Neighborhood“, Carl makes the case that:

The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month.

The S&P/Case-Shiller Index is perhaps the best known housing benchmark and was the first major index to the space. One of it’s authors, professor Bob Shiller, is well known for his bestselling book. As a result, it has become the index most often cited in the media and perhaps most subject to attack by competitors, and by various segments of the housing industry who don’t like the sharp declines it has been reporting.

The real irony here is that CSI and others were created to enable the sale of financial instruments so that investors can better manage risk or simply follow the US housing market in aggregate….not for individual consumers to track their local housing markets in real time, given the lengthy delay in some of the index reporting schedules (CSI releases September data next Tuesday).

Yet in one of the weakest housing markets in years, significant trading activity appears to remain elusive in this business space and their application is expanding into the consumer space.

But the indexes may be leading everyone astray. Just as respondents to election surveys are meant to stand in for the broader electorate, the homes being sold need to represent all homes. The problem is, producers of these price measures aren’t sure that sale prices reflect the values of houses not on the market.

Carl’s column does thrash the indexes quite a bit, but in their defense, their day will certainly come as data collection gets better and faster, and markets for these products evolve as investors begin to understand them. I suspect this will occur at the point where Wall Street is able to reinvent itself.

Its going to be interesting to see how long acceptance is going to take to achieve. I suspect it will be measured in years.

After all, it’s freezing out there.


Tags: