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Housing Indices & Portals

Housing Stats Can Be Misleading (Long Live The Fed)

May 26, 2006 | 7:55 am | |

Well, the bad news is that we have to work today (well, most people) but the good news is that we have a long weekend ahead of us (and a lot of kayaking to do). I prospose we use the time to ponder how the housing market is really doing.

The housing stats and the anticipation of the Fed’s next move, seems to be largely reliant on misleading data. The Fed has ready indicated that they themselves are waiting to see what the data tells them before the next FOMC meeting. That in and of itself is reasonable, but the message seems to be that they are not in the driver’s seat. That is a big concern for the consumer.

I still contend that the weaker housing data has not yet impacted the overall economic stats in any significant way. When it does, the Fed may find itself needing to loosen monetary policy again after two years of belt tightening.

Housing Stats

  • Housing market hangs in Fed’s balancing act [USAToday]. Adjustable-mortgage products that made the housing market more resilient over the past five years have left it more fragile as interest rates rise, complicating life for the Federal Reserve…a slowing housing market increases rental rates. In the Labor Department’s formula for calculating the consumer price index, rents are a big chunk of what’s called “core inflation,” a measure that excludes food and energy. Higher core inflation, in turn, spooks bond and stock traders, who fear an outbreak of inflation, putting more pressure on the Fed.

  • Mortgage apps fell by most in three months USAToday.

  • New home sales rise [Matrix] but we know that the new home sale stats is so flawed that it should not be relied on.

  • Inventory fell [BW]. Inventory supply fell from 6 months to 5.8 months.

  • Sales of existing homes [BW] increased but at the slowest pace in 4.5 years and prices increased 4.2% to $223,000 which is the smallest annual price gain since 2001.

Fed Commentary


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Housing Going Dutch In Taking The Long Term View

March 31, 2006 | 12:01 am |

A hat tip to [Calculated Risk] for pointing me to this post on [Economist’s View] that discusses Shiller’s long-term views on the current housing boom and presents much of his recent paper Long-Term Perspectives on the Current Boom in Home Prices.

Robert Shiller looks at over 100 years of data and asks the question every homeowner wants to know: what is the short-term and long-term prognosis for real estate values? The news isn’t reassuring, but luckily risk markets are being developed to help people hedge or buy insurance against the risk that Shiller unveils. His controlled series using housing along a canal is fascinating.

For the free full version of Shiller’s work as a download which requires registration, go here.

Professor Shiller has been calling for crash of housing for the past 5-6 years and he has focused on more pyschological reasons. He is consisent with his point, similar the way the Economist magazine is on this position. Bearish on housing.

Dean Baker, Center for Economic and Policy Researh also has a paper out: The Menace of an Unchecked Housing Bubble

An unprecedented run-up in the stock market propelled the U.S. economy in the late nineties and now an unprecedented run-up in house prices is propelling the current recovery. According to Dean Baker, like the stock bubble, the housing bubble will burst. Eventually, it must. When it does, the economy will be thrown into a severe recession, and tens of millions of homeowners, who never imagined that house prices could fall, likely will face serious hardships.

For the free full version of Baker’s work as a download which requires registration, go here.

I subscribe to me Baker’s email list and find much of the publication very informative as well. He’s bearish on housing too.

UPDATE

To digress a bit:

Although Austin Powers made a case against the Dutch, (wink) here’s one to invoke sympathy. In Lisa Chamberlain’s article Pressing a Claim for Dutch History [NYT] she discusses the eminent domain taking of land by the Metropolitan Transit Authority from the Collegiate Church Corporation which has owned it for 282 years.

The controversies covering eminent domain takings appear to be on the rise as government authorities have more lattitude than ever before. More to come.


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What Do Cheddar Cheese, Nonfat Dry Milk and Housing Have In Common?

March 24, 2006 | 12:05 am | |

Besides the hot futures and options vehicles nearly every American trades such as cheddar cheese and nonfat dry milk (just kidding), starting March 31st, investors can now trade housing index futures as well.

The indexes will be called the S&P Case-Shiller Metro Area Home Price Indices and use calculation techniques developed by economics professors Karl Chase and Robert Shiller, author of the influential book “Irrational Exuberance.”

The press release provides a good overview: S&P Set to Launch Metro Area Home Price Indices.

There will be a composite index weight by market size and one for each of the following ten cities: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York Commuter Index, San Diego, San Francisco and Washington D.C. I would venture a guess that the NY Commuter Index includes New York City, the outlying suburbs of Westchester and Fairfield Counties, Long Island and Northern New Jersey.

This index won’t render the OFHEO Housing Price Index or the various NAR indexes obsolete because this covers 10 metro markets rather than entire country.

However, it looks like the methodologies employed in this index are far better, with less bias than the NAR and OFHEO numbers. Here’s a series of white papers on the Chicago Merc’s site that sums it up nicely as follows:

_National Association of Realtor (NAR) Indexes_
– NAR indexes quoted as median home values and do not use repeat sales methodology
– Median values do not address homeowner returns and may readily be skewed if composition of housing stock changes, e.g., new luxury subdivisions are introduced to area

_Office of Federal Housing Enterprise Oversight (OFHEO)_
– Uses repeat sales methodology
– BUT … sample confined to Fannie & Freddie conforming mortgages and, therefore, skewed to low end of housing market
– Only perhaps 1/6th of California housing sold with conforming mortgages
– Uses appraisal data to supplement sample … appraisals tend to be upwardly biased?

What does a housing index that can be traded do for us?


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The Wealth Effect: Stocks vs. Housing

August 19, 2005 | 8:12 am | |

With the discussion today comparing stocks versus real estate, its worth taking another look at a research paper from a few years ago: Comparing wealth effects: the stock market versus the housing market [Note: PDF] written by professors Case, Quigley & Shiller. In their abstract they state:

We find a statistically significant and rather large effect of housing wealth upon household consumption.

The wealth effect is defined as:

The premise that when the value of stock portfolios rises due to escalating stock prices, investors feel more comfortable and secure about their wealth, causing them to spend more.

The impact on consumer spending is more than double when tied to the value of their home rather than their stock portfolio. This has broad implications for the economy and is likely of significant concern to the Federal Reserve in their recent policy of reigning in the threat of inflation.

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