Case Shiller May 27 2008
Yup, I missed Tuesday’s Case Schiller Report. Between February and March, Portland’s Index dropped from 176.24 to 174.39. A small decline but a decline nonetheless and return to April/May 2006 levels.
I also found this article, on the back page of Realtor Magazine (NAR’s publication), an opinion piece that says Case-Schiller is a conflict of interest.
Created by Shiller and Karl Case, an economics professor at Wellesley, the index is licensed exclusively to Macromarkets LLC for “developing, structuring and trading financial instruments,” says the Macromarkets Web site. Among Macromarkets’ products is the Housing Futures and Options index, which forms the basis for “directly investing in and hedging U.S. housing” on the Chicago Mercantile Exchange, where futures and options on the index are traded. “Every time a CME hedge is made, revenue flows to Macromarkets,” says NAR’s chief economist, Lawrence Yun. “People would hedge only if they believe price movements will be volatile.” Shiller is a founder and chief economist of Macromarkets. So, is the index biased to the negative? Its divergence from OFHEO’s findings is so wide that Andrew Leventis, the agency’s senior economist, has undertaken studies to find out why.
It will be interesting to see if their is a divergence. Is it Realtor backlash to negative markets or does it have foundation?
In the future, if you think I’ve missed something, bring it up politely rather than being snide about it.
May 31st, 2008 at 8:40 am
The NAR trying to discredit Case-Shiller reminds me of how republicans (and increasingly, but to a much lesser extent, democrats) play politics. If you can’t attack their message, attack their motives or perhaps just make up something juicy about them. Pretty soon, the NAR will be leaking pictures of Robert Shiller walking into an X-rated theater with a transvestite hooker.
Unfortunately for the real estate industry, plenty of other economists concur that prices have gotten way out of hand due to speculation, hysteria and bad fiscal policy. And CS can’t drop prices or manipulate markets simply with words. That’s ludicrous.
Then of course one has to compare the CS people to the NAR. The NAR has no hidden agendas, no ulterior motives, just the deep, altruistic desire to get everyone into a house that will cost them most of the money that they bring home. No money is ever received by the real estate industry when a house changes hands. It’s all done for free, the funding for the industry’s activities coming from bake sales, kind donations and Sunday night Bingo proceeds.
May 31st, 2008 at 4:43 pm
I can’t believe you gave that blatant piece of NAR disinformation blogspace, Charles.
“So, is the index biased to the negative? Its divergence from OFHEO’s findings is so wide that Andrew Leventis, the agency’s senior economist, has undertaken studies to find out why.”
This controversy was settled by the OFHEO in a series of papers from 2007 on.
The latest can be found here:
http://www.ofheo.gov/media/research/OFHEOSPCS12008.pdf
An earlier article:
http://www.ofheo.gov/media/research/notediff2.pdf
For those who lack the time or ability to read the reports, the basic finding is that when OFHEO and C-S measure the same data they agree closely. In fact, the OFHEO now publishes a detailed table of “diffs” in every monthly HPI report.
A direct quote from the HPI:
“Although both indexes employ the same fundamental repeat-valuations approach, there are a
number of data and methodology differences. Among the dissimilarities:
a. The S&P/Case-Shiller indexes only use purchase prices in index calibration, while
the all-transactions HPI also includes refinance appraisals. OFHEO’s purchase-only
series is restricted to purchase prices, as are the S&P/Case-Shiller indexes.
b. OFHEO’s valuation data are derived from conforming, conventional mortgages
provided by Fannie Mae and Freddie Mac. The S&P/Case-Shiller indexes use
information obtained from county assessor and recorder offices.
c. The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for
more expensive homes have greater influence on estimated price changes than
other homes. OFHEO’s index weights price trends equally for all properties.
d. The geographic coverage of the indexes differs. The S&P/Case-Shiller National
Home Price Index, for example, does not have valuation data from 13 states.
OFHEO’s U.S. index is calculated using data from all states.”
Another major methodological difference:
“The House Price Index is based on transactions involving conforming, conventional
mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on
single-family properties are included. Conforming refers to a mortgage that both meets the
underwriting guidelines of Fannie Mae or Freddie Mac and that does not exceed the conforming
loan limit, a figure linked to an index published by the Federal Housing Finance Board. The
conforming loan limit for mortgages purchased in 2007 was $417,000.”
When the NAR routinely publishes outright lies is it any wonder that the real estate profession is the least respected profession in the Harris poll:
http://www.harrisinteractive.com/harris_poll/index.asp?PID=793
May 31st, 2008 at 4:46 pm
I hate blogger.
Active links:
2008 report
2007 report
June 1st, 2008 at 8:10 am
can’t believe you gave that blatant piece of NAR disinformation blogspace, Charles. . Silly me, I should have ignored an opposing view.
Readers know that I don’t necessarily agree with the associations that I am a member of. They do great things but not all the time.
The very first line of text at the top of the blog states: “Educating and Sharing Ideas with Buyers and Sellers in the Dynamic Portland, Oregon Real Estate Market.” I never claim to be the omnipotent Realtor. If I did, I wouldn’t allow comments. Rather, commenters, even Squeezed, can provide insight that I may not have.
June 1st, 2008 at 8:30 am
What’s perplexing Charles is that you rarely, if ever, state if you agree or not. You rarely give your opinion. By posting the above NAR piece with the comment, “It will be interesting to see if their is a divergence. Is it Realtor backlash to negative markets or does it have foundation?” You give the appearance of sitting on the fence and stepping on either side as needed but you seem to rarely take that step.
What would the big bosses at Prudential say if you had said what squeezed said in your posting?
June 1st, 2008 at 8:49 am
I don’t think Prudential or any other brokerage is trying to create Clone Realtors. We are all different. NAR’s Realtor magazine can be pretty painful to read as they seem beholden to their marketing partners and many pieces are one-sides. The CS opinion piece was written by the editor of Realty Times. A pro/con piece would have been a stronger story.
And honestly I often don’t have a formed opinion when I post a thread. This takes a massive amount of time and I often let the comments inform me as they flow in. Squeezed obviously knew/had the pertinent research on the topic at his fingertips. I didn’t and it would have taken some time to come up with something that was less thorough. I don’t want to take a side until I am informed. It’s an open forum.
June 2nd, 2008 at 9:59 am
It says “investing AND hedging” not just “hedging.” Any conflict of interest from hedging is balanced out by the same conflict of interest from investing.
Looking for conflicts of interest is healthy skepticism. But NAR accusing C-S of conflict of interest is a bit like the tobacco industry accusing the medical profession of conflict of interest.
June 11th, 2008 at 10:47 am
June 11, 2008 Madison, NJ. –
MacroShares Housing Depositor, a subsidiary of MacroMarkets LLC, filed with the Securities and Exchange Commission for exchange-traded securities that will allow investors to invest in the upward and the inverse movement of U.S. home prices. MacroShares Major Metro Housing Up and Down securities will be based on the S&P/Case-Shiller Composite-10 Home Price Index and will allow investors to access this important, but illiquid, asset class. When launched, these revolutionary paired securities will have a ten-year term and will feature a 2x (200%) leverage factor.
MacroMarkets LLC plans to launch the new securities on the NYSE Arca under the ticker symbols:
UMM – MacroShares Major Metro Housing Up
DMM – MacroShares Major Metro Housing Down
MacroMarkets currently manages over $1.4 Billion in assets and averages combined trading volume of 6.2 million shares in its MacroShares product line. Sam Masucci, MacroMarkets President and CEO, noted, “We are very excited to apply our patented MacroShares technology to the U.S. residential real estate market. Housing has a capitalization value of approximately $22 trillion, making it one of the largest, unsecuritized asset classes in the world. MacroShares were originally conceived to provide access to large illiquid assets like housing. The capital markets need a way to access or hedge residential property through exchange-traded products, and MacroMarkets is leading the way.”
MacroShares Major Metro Housing will be based on the S&P/Case-Shiller Composite-10 Home Price Index, which is a nationally recognized gauge for U.S. home prices and is followed closely by both institutions and the media. The Composite-10 is a weighted measure of home price changes. [list of cities removed- Portland is not one of them]
Robert Shiller, renowned economist and MacroMarkets’ co-founder commented, “MacroShares Major Metro Housing enables investors the unique ability to gain exposure to the price movement of home prices, a commodity that greatly affects both institutions and individual investors.”