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Housing Data: Shiller Unaware Bernankinflation Winning
Housing Data: Shiller Unaware Bernankinflation Winning
Courtesy of Lee Adler of the Wall Street Examiner
Poor Robert Shiller is behind the curve
There were two major housing data releases today. One of them is important. The other was a misleading misdirection play, that is leaving its creator clueless.
Due to its peculiar and excessive smoothing methodology, the housing Case Chiller is always behind the curve. It uses a 3 month average of sale prices closed in the 3 months up to the last reported month, in this case December, January, and February. That means that the data represents the average price of contracts closed over a 3 month period with a time mid point of mid-November. Need I remind you, it is now the end of April. The Case Chiller data represents the market more than 5 months ago.
This would be like the Wall Street Journal reporting only the Down Jones Industrial Average 65 day moving average as of November 16. Really, who gives a crap about what the 3 month average of the Dow was 5 months ago? Do you? I didn’t think so. So why pay attention to the Case Chiller?
This is totally worthless data, yet the media continues to report it as if it means something.
Actually, there was a third release today. The Federal Housing Finance Agency (FHFA aka Foofah) monthly price index was also released today. The Foofah data is not quite as slow. It uses sales only from the last available month which in this case is February. It at least recognized that a turn took place for sales closed in February.
The Conmerce Department released its new home sales data. This is really crappy data because it uses a tiny sample survey that gets revised every month for 5 months until the sample size is statistically significant. That being said, it does have certain advantages, and the revisions have not been so large that they change the absolute direction of the index.
The new home sales price data, while more volatile than the ultrasmooth and useless Case Chiller, uses contract prices from the previous month, not closed sales from two, three or four months ago that went under contract two months before that. It is the most current index of actual contract selling prices, released with a lag of just a month. Trends can be isolated by deriving year to year changes. Median and average annual price changes in new home sales have shown consecutive steep increases in both the February and March data.
New House Sales Price Chart- Click to enlarge
I watched an interview of Robert Shiller today. It was painful. He seemed confused and uncertain about what’s going on. Due to the painfully slow data collection and excessive data smoothing of the index bearing his name, Shiller has missed the turn. Professor, the supply demand equation has two parts. Low prices have cause supply to be withdrawn from the market, bringing it into equilibrium with historically weak demand. Bernanke inflationary policies are causing house prices to inflate, just like oil prices. Housing is a necessity. When it’s as cheap to own as it is to rent, and there’s too much free money around, guess what? Prices for necessities rise.
New house median sales prices were up 6.3% year over year in March. That was the second straight year over year increase. The new house average sale price was up 11.7%, also the second straight increase. Average price is skewed by product mix. The market isn’t up 11.7%, but it’s the direction and consistency of the data that’s important.
The NAR’s data for March showed its second straight monthly increase, at +5.7% for the month, with a year over year increase of +2.5%. And now the FHFA shows slight a year to year increase for sales closed in February mostly contracted in December, the weakest month of the year.
Current, real time national listing price indexes (Housingtracker.net) have shown excellent predictive value in reflecting in real time the direction of the lagging closed sale data. They have shown year to year increases since December and are up 3.7% year to year through this week. In March, at the time corresponding with the March new home sales contract data, they were also up 3.6%. In January, at the time corresponding with the NAR’s March closed sales data (on average, January contracts) they were up 2.9%. The NAR’s corresponding closed sales data showed an increase of 2.5%. A wide variety of data is consistent in showing year to year increases in prices for the first time without the benefit of tax giveaways, or pending increases in FHA fees.
Actual, not seasonally fudged, builder new house inventory was revised down for each month from November to February. At 144,000 units, builder inventory is now at it’s lowest point in 50 years. That is not a typo. Five oh. The records only go back to 1963.
Furthermore, existing inventory is being made obsolete at a breakneck pace as the scary bogeyman called “shadow inventory” removes houses from the market through locational, physical, and functional obsolescence faster than they can be placed on the market. Shadow inventory is like shadow boxing. It isn’t going to hurt anyone, except the banks and institutions that own them, and ultimately the US taxpayer, who will be forced to pay for the banksters’ losses because Fannie and Freddie guaranteed most of those loans.
The new home sales actual inventory to sales ratio at 4.5 is the lowest since August 2005. Demand is historically weak, but supply is now aligned with that fact. An uneasy equilibrium has been reached.
New House Sales Chart- Click to enlarge
New House Inventory Since 1963- Click to enlarge
Completed units in inventory were revised down 3 of the last 4 months. At 48,000, completed unit inventory has never been even remotely close to being this low.
Not seasonally adjusted actual monthly sales were revised up for all months November to February. That is the first time I’ve seen that in 7 years of watching this data closely. Sales are still extremely weak historically, but tight supply and Bernanke’s unholy suppression of interest rates are reigniting inflation. Shiller says that housing will stay depressed for a generation. I’d fade him. If anything, prices will surprise to the upside much sooner than anyone thinks.
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Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to the The Wall Street Examiner.
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Case Shiller also, by design, ignores the condo market and the bank owned market.
Case Shiller intentiionally, by design excludes huge portions of the market from its calculations. If, say, Bank of America forecloses on some family and then sells their house for 67 cents on the dollar, Case Shiller doesn't include that price in its calculations. It doesn't exist for the purposes of calculating the Case Shiller index.
This is another reason why the Case Shiller index, in our present circumstances, can be months behind the market. Let's say in a small subdivision of 30 similar houses, Bank of America forecloses on one homeowner who bought his house for $300,000 and then sells his home for $200,000. What happens to those other 29 homes that were also bought for around $300,000? They've now got a perfect comp for them at 2/3 their previous price. It might take a while but when one of them finally sells, that bank owned sale will affect the price of the later sale and the Case Shiller index will finally notice that something happened. But it won't pay any attention whatsoever when the bank owned sale happens.
it would be very easy if you had access to accurate info...however, the banks won't let you have it, the mortgage bankers asociation won't let you have it and the NAR is a fucking joke.
LOLWUT
Housing prices are determined by the PREVAILING WAGE (you don't buy a house, YOU AGREE TO A MORTGAGE PAYMENT).
Until wages go up, there will be no housing recovery.
Wrong, housing prices are based on income, cost of the home and interest rates....why do you think there was such a run-up in prices during the boom? Not because everyones incomes rose dramatically, but because interest rates went lowere and lower allowing people to borrow more and keep monthly payments constant (also lets not forget that lower interest rates allowed people to qualify for higher loan amounts....while that was still part of underwriting).
Housing prices are low enough, interest rates are low enough and people are making enough for a housing recovery...what's missing is that no one wants to buy buy a very expensive item and watch it drop another 10% or 20% (or more) in vaue. When the economy starts recovering, for real - not this Obama propaganda bullshit recovery, people will start buying homes...as prices slowly firm up more people will come back to the market. Once the healing starts, it should go pretty quick, but it all depends on a recovering economy, jobs and confidence.
You are wrong too.
Housing prices went up because they were basing everything on PERCEIVED WEALTH..... not income. No one ever cared about income. And this a big reason we are where we are. Income is cash flow. Cash flow is king. Interest rates were a partial add to why prices went higher. Everyone was fed the bullshit about it being a good investment....about mortgage debt being a good debt...about price of housing doubling every 10 years.. All lies. But the biggest lie of all was the concept of perceived wealth.... Once all those assets you bought using debt stopped appreciating (magically ofcourse) you are left holding the bag on those assets. At a lower price, with high levels of debt and NO REAL CASH FLOW, as wages were never rising. People used their homes like ATM's. BUT, when you use a REAL ATM you withdraw against actual cash. When you used your home, you were borrowing against and inflated assets. HOW FUCKING STUPID WAS THE AMERICAN PEOPLE??? I WIL LET YOU KNOW IN ANOTHER 10 YEARS, WHEN THEY REALIZE FOR THEMSELVES HOW FUCKING STUPID THEY WERE.
LOLWUT
You are forgetting the massive shadow inventory (bank owned houses not yet on the market). What do you think will happen to housing when those hit the market?!
Of course, they could just let those houses melt into the ground, artificially boosting supply, which may be their plan.
Hopefully that will prompt a backlash from local governments raising taxes on unoccupied houses.
And "housing prices are based on income" is the same damn thing as "prevailing wage"! DERP
EattheBanksters....good points about house prices and mortgage rates being low enough. You are thinking, not just emotionally reacting/posting.
But here's another thing to think about; the house price/income ratio of other countries and cultures. Primarily because of crowding in places like Hong Kong and Tokyo, the average citizen expects to pay many times the "3-5 years gross salary" that most of the U.S. enjoys. Check out the average price per square meter of homes in any European city.....they are much higher than the U.S., even with their citizens making no more than us here. Housing is simply known and expected to be dear. We will see that same re-evaluation here in the future. It is already evident in our dense coastal cities, and it will intensify. Probably half of the gen x'ers will obtain home ownership through inheritance, ala the European model. These are the good old days for home buying, right here, right now.
Let's not forget unemployment, which is at 22.5%. In addition to wages people need jobs to get wages. 99'rs don't (yet) qualify.