Accelerating Housing Declines

S&P guest on this Marketwatch video does not mince words:

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  1. Mike commented on May 4

    A few important facts (weaknesses) about the index.
    1. It is a lagging indicator – not a good indicator to predict future trends. From S&P website, “The S&P/Case-Shiller Home Price Indices are calculated monthly and published with a two month lag.”
    2. Small sample size (only 20 cities, large statistical sample error) and not representative of the overall US housing market (using 100 largest US cities would produce more accurate data).
    3. The index only tracks single-family homes (not condominiums that represent half the transactions in most cities). “The S&P/Case-Shiller indices do not sample sale prices associated with new construction, condominiums, co-ops/apartments, multi-family dwellings”

  2. Mike commented on May 4

    A few important facts (weaknesses) about the index.
    1. It is a lagging indicator – not a good indicator to predict future trends. From S&P website, “The S&P/Case-Shiller Home Price Indices are calculated monthly and published with a two month lag.”
    2. Small sample size (only 20 cities, large statistical sample error) and not representative of the overall US housing market (using 100 largest US cities would produce more accurate data).
    3. The index only tracks single-family homes (not condominiums that represent half the transactions in most cities). “The S&P/Case-Shiller indices do not sample sale prices associated with new construction, condominiums, co-ops/apartments, multi-family dwellings”

  3. Media Hype commented on May 4

    4. Another one, the index does not differentiates between regular sales and forced foreclosed property auction sales — auctioned foreclosed properties (auctioned 30-50% below the current market price) distort the index.

  4. Rich Shinnick commented on May 4

    Mike,

    Lagging indicators are not per se bad for predicting the future, they set up a trend. If a trend line looks like prices are falling off a cliff, it will usually not make a V shapped bottom with something like home prices in my opinion.

    Media Hype,
    So foreclosure auctions are below market? Or, do they set the market? I guess the message here is that one would be stupid to pay “market” when you can buy at an auction 30-50% below market. Do they keep these auctions secret? They must be packed to the gills with buyers-I mean Warren Buffet is probably sitting in the front row at each one!

  5. Barry Ritholtz commented on May 4

    A quick definition (even tho Mike’s IP address reveals him to be our troll) for the benefit of everyone else:

    A lagging indicator changes its direction after the business cycle changes.

    Lagging does not mean it is reported after the fact (all economic data are reported that way). Rather, what it lags is the economic cycle, and not real time.

    For example, Unemployment tends to tick up for months after a recovery has began. Hence, it is said to lag the cycle. Temp help, on the other hand, leads the cycle, but is not one of the 10 Conference Board LEIs (but average manufacturing-worker workweek is).

    The Stock market tends to lead the cycle turns, falling before a recession starts, and rising before the recovery is apparent (although there are many many exceptions to this).

    The Case Shiller Index would be considered a lagging if it kept going higher after the real estate market turned down (it did not), or if it kept going lower after the housing market turns up (we shall eventually see).

    Do not confuse the delay in reporting with the technical terms leading and lagging . . .

  6. Harry Rheems commented on May 4

    I’d tap Kelsey … If I had my beer goggles on and she had a bag on her head.

  7. Mike commented on May 4

    Do you know what month is it? (May 2008)

    Even though the index was published in April 2008; nevertheless, it represents the data only up to February 2008.

    It confirms that the housing was weak in February 2008 (lagging indicator), but it does not tell us anything about March, April, May, June, July, August, September…

    It is not a leading indicator, it is not even a coincident indicator, it is a useless as predictive tool lagging indicator. (Good for NYT headlines spreading fear, but useless as a predictive tool for investors – looking 6-12 months forward)

    Moreover, if you like the trends, the index is in long term bullish trend.

    Composite-10 symbol CSXR
    62 (1987) => 100 (2000) => 190 (2008)
    (prices are 90% higher today than what they were in 2000)

    Composite-20 symbol CPCS
    no data (1987) => 100 (2000) => 176 (2008)
    (meaning prices are 76% higher today than what they were in 2000)

    (Note the number for CPCS vs. CSXR index is lower [176 vs. 190] secondary to cities like Detroit added to CPCS in 2000)

  8. russell120 commented on May 4

    Even if it is useless as a prognostication tool, that is not the same as being useless.

    In complex economy it is difficult enough to know where you are, little less where you are going.

  9. loserincali commented on May 5

    You can throw your numbers around all night long, but here on the ground it’s getting ugly. Four of the condominiums in our complex in El Cajon, CA are in foreclosure. We bought them in late 04 and early 05 at $300,000 for the 2/2….today the 3/3 (purchased for $400,000) is on the market (and not selling) for $153,000.
    When I called a real estate attorney and told him my situation he said, “You’d be crazy to stay…walk now.”

  10. Trend shmend commented on May 5

    What non sense …… The soft landing crowd is still oblivious to the realties of the day. To much NAR cool-aid I suppose.

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