Housing News: October 29, 2009 October 29, 2009Posted by John Watch in AccuriZ News, AccuriZ Reports, News Feed.
Tags: AccuriZ, case-shiller index, data, housing market
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The ups and downs of the real estate market…always keeps us in suspense..please read on…
Case-Shiller Index Faulted by Founder Robert Shiller? September 22, 2009Posted by John Watch in News Feed.
Tags: case-shiller index, data, housing market, housing recovery, price per square foot, real estate bubble
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As reported in the Taipei Times, Economist and Ph D. Robert Shiller states that faulty models are one of the culprits that led to the lack of forecasting of the financial crisis by economists. Shiller states these models lack the study of economic bubbles necessary to prevent crashes like our recent crisis one;
“The widespread failure of economists to forecast the financial crisis that erupted last year has much to do with faulty models. This lack of sound models meant that economic policymakers and central bankers received no warning of what was to come…the current financial crisis was driven by speculative bubbles in the housing market, the stock market, energy and other commodities markets. Bubbles are caused by feedback loops: rising speculative prices encourage optimism, which encourages more buying and hence further speculative price increases — until the crash comes.”
Real estate is Cyclical, Seasonal and Emotional, and Dr. Shiller appears to believe this as well. The “faulty models” caused an emotional stir that led to speculative prices until the crash. The question is; which faulty models is Dr. Shiller referring to exactly?
Is the Case-Shiller Index included in his broad statements? Some economists argue that Case-Shiller is one of the faulty models that contributed to the increasing optimism and rising speculative prices in the market; as well as the panic and fear when the markets began to decline. (Case-Shiller articles).
Developed in the 1980’s, the Case-Shiller Index evaluates trend changes in housing prices on a monthly basis of homes being purchased. The index appears to be limited in the data it considers and analyzes, disregarding specific property data elements that assessment offices began to collect after its creation. Basic property data collected from public records such as school districts, location factors, square footage, age of home, land area, garages, bathrooms, views, waterfront, public amenities such as water/sewer and other property structures appear to have limited influence in the calculations of the index.
For example, does the index adjust for the increased average size of a home built after 1995? Using the same brush from 1980 and repainting over the same picture causes one to have an obscure view of a localized market like real estate. In recent Index reports, Case-Shiller has inaccurately weighted metro areas suffering more foreclosures, which drag down the overall value of the Index. Yet, it remains the leading index in the market; unaltered, unaccounted and underperforming during our most recent crashes.
Dr. Shiller’s Index lacks the very ‘sound’ that he rebukes in his own article.
So can we expect an overhaul of the Case-Shiller Index? Hindsight is always 20/20, and this article sounds more like a promotional piece promoting his latest books, than an honest challenge to fellow economists to revise models and develop more reliable measurement tools for the future.
When Dr. Shiller sold the Case-Shiller Index in 2001, what were the terms of the sale? Did the conglomerate he sold to make adjustments to the index? And the final question, what benefit did the conglomerate gain by having S&P promote the index starting in 2005?
Hopefully Dr. Shiller is taking his own advice and examining the fundamentals of the Case-Shiller Home Price Index and seeking ways to improve on a model, that when developed was the only one of its kind. Today, many economists and computer technicians have access to so much data, that more complex models offer better solutions with limited influence from corporate rating organizations.
Real Estate Mania: Bears vs. Bulls in a City Near You! August 31, 2009Posted by John Watch in AccuriZ News, News Feed.
Tags: bears, bulls, case-shiller index, Home Sales, home sales activity, homeowners, Housing Index, housing market, housing recovery, property data, public records
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Real estate is Seasonal, Cyclical and Emotional, and the emotions are running wild at the moment. Home prices are up, sales are increasing and the reports are presenting “good news”.
The “mania” of real estate predicting and forecasting is beginning to pick up as the summer selling season comes to an end, with hints of promise starting to appear in the housing market. After a grueling Housing Bust that left the economy severely damaged, property data analysis statistics collected from public records now show signs of recovery.
Both the Bears and Bulls have been fighting it out, relying on the training method of the S&P/Case-Shiller Home Price Index. The Bulls are starting to swing away, indicating a sign to the return of the boom days of old. The Bears are ducking the punches citing the lagging, inadequate property data analysis in the Case-Shiller Index as a sign of caution.
The stage for the Housing Market Bottom Showdown is set, with the American public’s perception of the market at stake. Leaning too far to one side could mean a repeat of the 2006 Bust. Are we to believe that we are on the verge of a turnaround, or do we still need to be patient? We will take a look at the supporting arguments from both corners, which are based on the Case-Shiller Index and determine the best judgment for the public moving into the winter months. Here’s the tale of the tape.
Packed with quotes of “positive signs” “great news” and “booming” about the Index, the optimism is rampant. It goes on to say that an area in Los Angeles had “booming” home sales again. Looking at the 20-city index below, L.A. had 0% change from Q1.
Is that really a boom? The American public needs real facts, not fluff. The following table is extracted from CNN.money.com:
Year-over-year, EVERY city is still negative, with 15 cities negative over 10%. The talk of “shadow inventory” further depreciating the market crept in as well.
It has been noted before that Case-Shiller Index probably over weights foreclosure sales (Reported by AccuriZ and NewsnEconomics). Foreclosure-metro areas have been more heavily weighted, dragging down the overall value of the Index. Does it seem logical that financial institutions would dump houses on the market, knowing that such actions would further deflate property values? There are duplicate and triplicate recordings of foreclosures out there; thus distorting the actual count of properties in foreclosure.
Asking the important question: Would you sell in a down market? It seems to have more common sense than the confusing and contradictory analysis of the sales data presented by Case-Shiller. Letting the market stabilize will enable mortgage servicing companies to come to terms with existing owners. The AccuriZ Mortgage Assistance Program also provides a solution to this problem.
The article ends with this quote from Mr. Shiller, “I have found that momentum matters,” he said, “and this is a sudden break in [downward] momentum. The [market] psychology seems to be changing.”
Advantage: BEARS- Who do we trust
Improved by how much? 10 of the 20 markets listed are bordering the 1% line. Considering the margin for error, 1% is a meaningless number.
The article then proceeds to list 3 reasons why the Case-Shiller Index is imperfect:
- It’s limited to 20 U.S. cities, representing just 9% of the U.S. population
- It’s on a 2-month lag, reflective of how housing was, not how it is
- It ignores locality, grouping city neighborhoods into one big lump
So if it’s “time to call a housing bottom,” what other data is being used (besides the imperfect Index) to make this claim?
Admitting that the Case-Shiller Index is imperfect is one thing, but using that same imperfect data (with no other visible sources) to create a market forecast is completely another.
Many reports have economists using the skewed data of the Index to captivate headlines and bolster their own personal agendas. When not weighed against other sources of information, the Index is questionable in determining a forecast.
Real facts about property data are needed to determine the current state of the market. This article ends by pressing people to buy now with contact information for a pre-approval letter.
Advantage: BEARS- Incomplete data means caution
Why It’s Hard to Tell If Price Gains Represent a ‘Turning Point’ from Wall Street Journal (WSJ.com): First, the article states that Mr. Shiller noted the recent index “may be turning point.” In next sentence Mr. Shiller is quoted saying, “It really is too soon to call this as a turning point.” Wait… what?
Later, Mr. Shiller expresses “great reluctance” in forecasting market prices. But this is exactly what transpires as economists make predictions solely based on the Case-Shiller report.
For example, later in the article housing economist Thomas Lawler notes that “the price index should keep gaining in the coming months” in the next paragraph. Based on what? What are we supposed to believe? The reason why it’s ‘hard to tell’ is because everyone has a different interpretation without providing the facts.
It ends with this quote from Lawler, “Indeed, the [index] is almost certain to continue increase over the next few months. After that, who knows?” said Mr. Lawler.
Advantage: BEARS: Too confusing to pinpoint.
Housing Market: Looking Better, But Still Troubled from Time.com: Using more than just the Case-Shiller Index, this article notes looking “behind the headline” to see that the “sector is still fragile.” It looks deeper into the property data to see that the low- and mid-tier homes are doing better than more-expensive homes. Once again we see that Square Footage Matters! (Reported by AccuriZ). In a recent Manhattan Condo report we predicted stabilization by Q4, based on square footage;
Also, noting that data on new-home sales like the Index are “notoriously imprecise and volatile,” the article states that “new home-sales are best looked at over five or six months.” So what is the real benefit of these Indexes?
The Time.com report even stated that the margin of error on one particular Index was plus or minus 13.4%. With that said who really benefits from this information?
The article ends with, “We’re now moving forward, and even though it looks like we’re doing that in a positive way, there could still be more plot twists ahead.”
So how do they match up for the American public? When the match is based on one specific source of data that has been historically ineffective, no one wins. The Bulls emotions are high right now, but as the emotional sector dies down – and foreclosures, unemployment and a housing oversupply (in the AccuriZ Housing In Crisis report) start to do damage in the later rounds – the Bears’ perspective might take control.
Again, Real Estate is Cyclical, Seasonal and Emotional.
Time and Patience are the elements that work to everyone’s benefit. While things are looking better, we still have some time to heal. Incomplete data analyses that rely on public records and outdated property data from certain regions of the country have little impact other than stirring up the emotional sector of the market. A level of confidence needs to be balanced with a level of cautiousness, as quarterly reports and month-to-month gains are not enough to be deciding factors in a market forecast.
Tags: case-shiller index, home values, housing market, Lend-Lease, Mortgage Assistance Program, property data, public records, real estate report
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Although home prices continue to decline, it may seem like the worst has passed for the housing market.
According to Standard & Poor’s report released today and public records, the 20-city index fell 17.1 percent in May from last year. This is the smallest drop in nine months. Economists forecasted a steeper decline at 17.9 percent, possibly indicating stabilization in the market. On a month-over-month basis, the property data index increased slightly at 0.5% in May, the first increase in the monthly index since July 2006.
So what does this mean?
While the report highlights positive signs of a recovery, many obstacles continue to hinder promising progress. With banks administrating strict guidelines on lending, unemployment creeping to 10 percent and foreclosures mounting, the rebound will be slow one.
Homeowners are feeling the most strain, as loan modifications are being stalled by banks. We propose this Mortgage Assistance Program that would allow a homeowner to remain in their house, while restructuring their mortgage payments for a time period with government assistance. Call it a 21st Century Lend-Lease Program.
Yesterday a man left a poignant comment on our ActiveRain Blog about the accountability that everyone needs to take in this issue. Whether it is trying to get your voice heard or being the voice, we all must take responsibility and produce vaible solutions for the problems.
“At this point, I think that what caused this crisis is becoming irrelevant. If lenders don’t start relaxing their guidelines a bit it’s going to become a lot worse. Obama’s plan isn’t working, loan modifications are being stalled by banks, and investors have been completely cut off unless they have pockets full of cash. Where is the accountability for all the bailout money the banks got? Why are laws that hurt homebuyers & investors being passed in this economy? They just passed one in AZ to let banks go after default judgements with homeowners who short sold their homes! What choice does an owner have if his home value is now less than his mortgage and he is forced to sell, for whatever reason? They are even trying to stop homeowners from doing ‘owner carryback” financing. In some cases that is the only way to sell a home. If no one can get conventional financing what other choice is there. Bottom line – something has to be done about the bank’s lending policies and harmful government intervention before we see a turn around in the housing crisis. Pay attention to what’s going on and make your thoughts known to the ‘powers that be”.”
For more information regarding the Mortgage Assistance Program or Market Reports, CLICK HERE
Tags: case-shiller index, data, Housing Index, housing market, median sale price index, real estate report
“What I notice is that the sales pair counts are becoming increasingly weighted toward the biggest bubble – i.e., foreclosure – metro areas: LA, San Diego, Phoenix, etc. Sales in these areas are really dragging down the overall value of the index. Presumably, the foreclosure sales are weighted less heavily, but it is somewhat suspect to me that the share of Phoenix’s housing market, for example, has increased its share of pair counts by 8.7% over its sample average, 5.4%.”
We agree with Rebecca Wilder.
In her July 2 article, Rebecca discusses the S&P Case-Shiller index and how it could be potentially creating a foreclosure bias when weighting its 20 city index.
Thank you, thank you!
We have been analyzing the Case Shiller data for years and as you have indicated very concisely, the index does have a potential for bias.
Your direct comment about Phoenix and Arizona hits the mark. Case Shiller refers to the overall sales price and does not consider the fundamentals of the sale price such as square footage, age of home and land area. Nor, in our opinion does it recognize the weight of the general population size to sales activity size.
Based on property data and public records, our analysis indicates that the price decline, if developed on a sales price per square foot basis, is not as drastic. Furthermore if you establish a weighting influence for the impact of foreclosures, the decline would be even less.
Maricopa County (Phoenix) had a study completed to determine the influence of foreclosures for assessment purposes. This report clearly shows a differential of 10% to 15% (depending on level of foreclosures). This report is based on the sales price per square foot. So if 1.5 million homes in the 5th largest city are valued recognizing these influences, why isn’t Case Shiller recognizing this.
Many will argue that foreclosures are market value and hence are the market. In my opinion this is not true. Yes foreclosures influence the market, but adjustments must be considered for these sales under market conditions and financing in an appraisal.
In addition to your comments on all of the regions, I will clearly state this: More weight should be developed based on the general population of properties, not the sales activity alone.
Kudos’s for pointing this out. Case Shiller represents two-thirds of the housing market? Well what is it leaving out? An index that tracts Metro Market should be based on a consistent parameter (say 60 mile radius) and it should identify the total properties covered, residential properties and annual sales activity. This index should also categorize properties into groups. I find it very difficult to accept that a 1,000 square foot house has the same economic and demographic buyer as a 2,500 square foot house.
Yes, I understand the need for a general overview, but the resources exist for a more expansive index and it should be developed. This is no easy task. Our current property data tracking covers 45 million properties versus Case Shiller at 70 million. Our analysis clearly indicates that Case Shiller, while being a benchmark is not a true indicator of the overall market.
Based on this past real estate crisis, we simply cannot afford to use indexes that lack total coverage and stratification levels which will enable financial institutions, realtors, builders and the general public the ability to understand a very complex financial market.
Tags: case-shiller index, Housing Index, housing market, property data, public records, real estate report
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Seeing that there is at least someone out there who has the sense to dig deeper than the broad generalization of most property data reports that are being released, I decided to link this article for you to check out.
Here’s and excerpt from the article:
“A lot of folks are parsing the latest S&P Case Shiller home price report out today, and debating whether some month-to-month increases are proof of home price stabilization nationwide. I frankly think it’s impossible to say anything nationwide, because a lot of different markets are reacting very differently. That may seem an incredibly prosaic thing to say, but I think an awful lot of smart folks often lose sight of that.” – Diana Olick