Housing Data: Shiller Unaware Bernankinflation Winning

ilene's picture

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

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 Sale Price Chart- Click to enlarge

New House Sales Chart- Click to enlarge

New House Inventory Since 1963- 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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malek's picture

So to sum it up, you are saying we/you don't need graphs which are well established, are hardened against being gamed, and accept lag over possibility of misinterpreting short-term spikes as turnarounds?

Lee Adler- The Wall Street Examiner's picture

Also, if I am wrong, and this is just a bump in the downtrend, that should be verifiable in the Case Shiller data by November-December with reference to the normal seasonal peak in June-July.  See you then. 

Cthonic's picture

There are lies, damn lies, and statistics; show us the sales by price decile and sales region.  Yes the jokers in the greater DC area are still partying like it's 1999... what about the rest of the country?

Lee Adler- The Wall Street Examiner's picture

That data is available, but it too is 5 months old. I know that you would not be interested in current listings by quartile so I won't point you to that. However, I will tell you that listings are down over 20% since last year at this time and down 37% since April 2007. 

Ask me again in August or September for the closed sales data current market. Of course, by then it will be too late, won't it?  

Cthonic's picture

I'm just trying to work through the cognitive dissonance that arises after reading a couple of columns along with yours:




The FHFA data shows strong regionality, will have to look at the underlying data to understand what they're touting.  Existing home prices still seem to be in freefall in some major metro markets.  Are homebuilder gross margins increasing, or is this all inflation pass through?


ilene's picture

From Lee: I sold in June 2005 which was the effective peak in Florida. I correctly forecast the timing of the top and the decline, and stayed steadfastly bearish until about a year ago when signs of a possible bottom began to appear. Those signs have only increased since then. People only look at the demand side of the equation. They fail to understand that supply has all but disappeared.

Shadow inventory is like shadow boxing. It's not going to hurt anybody.

No More Bubbles's picture

Lee, you are prety clueless!  Housing prices are NOT inflating.  The bubble hasn't truly popped it all.   The real drop is still ahead............

Dusty's picture

Easy to show a small "bump" on a graph. Harder to explain away demographics such as baby boomers and jobless students moving in together. Throw in the reverse effect of the mexican work force returning home for good. These are very strong trends that will be with us for decades. I was in the homebuilding business for 4 decades and know it like the back of my hand. I also know the economic trends effecting the US. Obviously Lee knows none of these important trends. The last 2 months we experienced a "bump". Nothing more.

juwes's picture

The interesting thing is how you all parrot the news about shadow inventory, which represents only the homes successfully stolen by the banks, legally their property.  There are hundreds of thousands of people delaying foreclosure with clever lawyers or other means.  Once they are all removed by armed state (bank) authorities, you will see the true housing prices revealed.

That plus the shadow inventory of course.

kevinearick's picture

pump the margin and discount the past....what's new? That's the point of the Constitution, to bring in new people to blame for the past.

Navigator's picture

You lost me at: "The NAR's data..."

What next Lee?  An article based of "data" from Faux?

FinalCollapse's picture

We have 50 mm people on food stamps. Nearly 50% of young people are unemployed and even if they are employed they have huge student loan debt. We have 8+% (core) unemployment but 16% is underemployed - if you want to believe the crooked gov data. We have the labor participation rate at all time lows. We have 10 mm houses in the shadow inventory and nothing is being done about it. The supply of houses got artificially constricted heading into the spring season in order to manipulate the RE market.

The real incomes are heading lower. Each passing year people make less and less money on the inflation adjusted basis, provided they are still employed.

The C-S HPI inflation adjusted is still 25% above the inflation line. We have long way down to meet our historical price averages. 

The nominal C-S is going down and the rate of declline is steady. There is nothing in the C-S HPI that indicates any bottom whatsoever. 

The RE market is completely broken. The first time buyers all but disappeared.Very few young people can qualify/afford buying low-end entry house. The move up buyers are gone too as very few can afford it - they are underwater or just above the water line, not enough to pay 6% RE commission and 25% downpayment. How many households have 31% equity in their houses? Have you bothered to check it?

Since you insulted prof. Schiller please be open to insults by others, especially after writing retarded article. These FHFA or NAR data points were proven to be grossly inaccurate and corrupt. They are in the same bed trying to manipulate the RE market. I guess there are muppets like Lee Adler that buy this BS. 

Bottom line - it was a fucking retarded article based on very little research but long on insults.

Lee Adler- The Wall Street Examiner's picture

Actually, it's based on years of research and experience with housing markets, and I presented a  anumber of facts and graphs to support my conclusion. You chose to ignore them. That's entirely your prerogative, and your conclusion is certainly one that anyone could reach who didn't read, or if they did read, chose to ignore, the data and charts that I presented. 

I'm sure that Messrs. Case and Shiller can don't need your defense of them, and would probably be embarrassed by it. 

skepticCarl's picture

While Zillow.com has it's flaws, it does provide some insight into price patterns for zip codes over the past 10 years or so.  The usual pattern shows the bubble peak in 2005-2006, and a drop to about 2002 prices, and kind of flat at that level for the past 12 months.  Higher interest rates could certainly start another leg down, but the Fed certainly is fighting that, and apparently, winning the battle of holding them down.

For those who find a home and a neighborhood that they like, or investors who can generate a positive cash flow, house prices and mortgage rates are now at favorable levels.

skepticCarl's picture

Adler's article at least offered a "head's up" take on the housing cycle.  While I agree with many of the comments that house prices won't rise until incomes rise, facts are facts, and home prices are firming a bit.  For those of us who have been low-balling offers, and being rejected time and time again, we realize that some significant investor money is sniffing out the bargains, and now placing a floor, at about replacement cost levels, under residential property.

Temporalist's picture

Just because there are people with money buying things doesn't make it a good investment.

HowardBeale's picture

ZH needs a new editorial content manager, as letting someone who bought at the top write articles on the potential trend of house prices and sales is just poor judgement.

Might as well ask GS is they have ever done anything illegal...

Lee Adler- The Wall Street Examiner's picture

No, you see, I bought at the bottom in May of 1991 and sold at the top in June of 2005. Please get the facts before making false and defamatory statements about a person. 

skepticCarl's picture

Do you have any evidence that the author bought at the top?  Why make up shit?

ilene's picture

Lee sold at the top. In my area, real estate ACTIVITY is picking up. (Not so much prices, but they aren't dropping.) Lee is saying exactly what he thinks - and giving his reasons - and he will be proven right or wrong. 

b_thunder's picture

"...Case Chiller is always behind the curve"  Really? 


so, w hat do you call a  Lee Adler , if a term "moron" is an understatement?



Lee Adler- The Wall Street Examiner's picture

I'm not offended by name calling. People do that when they aren't interested in the facts. If you were, you would have read the article. But either you didn't, or you chose to ignore the facts as presented. 

Again, Case Shiller isn't 2 months old, it is more than 5 months old. There are far more current indicators available, even real time indicators, that have proven to be accurate depictors of the trend over time. I rely on them and my analysis of a wide range of economic data. If I'm wrong, so be it, but I have done my homework and I have a long record of major calls that speaks for itself. I am comfortable with that. 

As for my background in housing. I worked in the real estate and real estate finance industries for 25 years. For the last 15 of those years I was a commercial real estate appraiser and market analyst. I wrote numerous reports on housing developments for clients ranging from banks to builders, to the FDIC and RTC. I sold my house in Florida in mid 2005 at what was the effective top of my market. In my housing reports to subscribers, beginning in 2004 I accurately forecast the top and its timing. I stayed steadfastly bearish on the housing market until last year when the first signs that things were changing began to appear. 

I report the facts, my analysis, and the opinion that I develop from that. I welcome disagreement. I want you to be informed in regard to the facts. 

skepticCarl's picture

What a useless, ad hominem attack.  Let's hear a cogent rebuttal.  Other commentors have offered some, without infintile emotion.

sessinpo's picture

Don't even need to read article - fade it!


What Lee doesn't understand is liquidity flows. Money isn't going to RE, at least not near as it did 6 or 7 years ago.

skepticCarl's picture

Smart, very smart.  Why confuse oneself with data and facts?

hidingfromhelis's picture

Sure, by selective reading of selected data one can selectively interpret the housing market to be in equilibrium.  Start adding inputs like shadow inventory, wages, unemployment, average net worth and savings, credit availability, household formation, etc. and the picture is very different.

Mr. Lucky's picture

Well at least the "fog a mirror requirement" to qualify for a mortgage has been halted.

Fred Hayek's picture


I sold my condo last year to someone who put down something like 3.5% down payment. 

Bicycle Repairman's picture

This article does not address any of the long term factors that will continue to depress housing.  To wit: boomers selling to a smaller cohort, immigration is now stalling, interest rates must rise at some time in the next 10 years, the shadow inventory is physically rotting, more expensive gasoline makes the mini-mansion obsolete, debt-laden college graduates, and on and on.


Lee Adler- The Wall Street Examiner's picture

Your point about the shadow inventory rotting is my point. It's not competitive supply. You have defeated your own argument. Shadow inventory is like shadow boxing. Not going to hurt anyone. It's a big overblown bogeyman of an idea. 

Bicycle Repairman's picture

My point is someone will buy this "salvage" for peanuts, refurbish it and sell it at a competitive, yet profitable price.  It will happen, because the FED will pay the banks full price, and then whatever the banks get for the salvage will be pure profit.  These houses will not be bulldozed.  They will be marketed.

I've read you and Russ Winter for a long time.  This article came as a total surprise to me.

Apply Force's picture

While employment is up, real wages are down - riddle me exactly how a lower wage scenario supports increasing home prices...?  This is the bigger picture I think many get upset at you not seeing/ignoring.  There are cash buyers waiting only for REO's that look OK - not great - to make home.  Regular guys and gals, that in former years would be looking for an "affordable mortgage."  Sweat equity is quickly replacing monthly payments.

Percetions of many have changed - and actions are now following closely behind.  Shadow inventory is the new paradigm.

yogibear's picture

Lee Alder is another bonehead Wall Street crooner.  Look at history Lee and incomes to get a clear picture. Your Benanke has done nothing except delay the adjustment and pile on heaps of more debt.

From here on more and more QEing becomes less and less effective for the dollar debasement/trashing.

Born-Again Bankster's picture

The price of homes being bought these days is going up, but it's not because we're in a recovery.  2 reasons for it:

1. FHA borrowers don't really care how much they have to pay if they can get a loan approved for 1% down.

2. The only non-FHA mortgage loans being made are going to the 2% of the population who can actually afford to buy a house and will pay more to get what they want.

FrankThinkTank's picture

LOL. Referencing NAR data - they don't have a vested interest, no no. Never.

Housing will not be back until (as mentioned by LowProfile) wages increase. Future labor must be seen as marginally profitable and absolutely necessary, we won't be there for a long long time

donsluck's picture

Declining housing prices is a good thing for young people entering the market. Every coin has two sides, and the government using it's powerful influence on one side of the coin is neither just nor smart.

kridkrid's picture

Inflation in the things you NEED... deflation in the things you OWN.  Housing may be a need, but home ownership certainly isn't.  And housing can take many forms, to include moving in with your parents and homeless shelters.  If there is any sort of meaningful and sustained price increase in housing values, I'll eat my hat.  That doesn't mean we'll have a straight line down, but the overall trajectory won't change.

Apply Force's picture

Agreed housing could and should take many forms... I would build my own but for the never ending hoops to jump through, rent owed by way of taxation on my productivity/labor (the home I would build) and on the land that I would be increasing the value of... Ever wonder why early State Constitutions do not have "property tax" included...?  Who would ever have lived in said State when less oppressive, freedom-bearing States were all around? 

IMO home prices will whipsaw downward, as there are few incentives left for home ownership or even productive work.  There is a chasm between price and value for a home currently.


HarryM's picture

Housing has historically been a good hedge against inflation

Housing prices moved along nicely with inflation from 1970 until around 2000.

Between 2000- 2006 housing prices spiked higher than the rate of inflation.

Current housing prices have returned to the inflation curve.



They might however go lower for a while until things stabilize.

One big problem I see is that publically traded builders continue to make the situation worse by now over building the rental market.

Either stop building or let financially qualified people become citizens if they buy a house with cash.

kridkrid's picture

that's the exact chart I mentioned yesterday in the case shiller thread.  To what would one attribute that gradual trend line upward?  It makes no sense to me.  It's not as if the utility of owning a home has gone up.  The materials for construction are not better (likely the opposite, in fact).  Lot sizes haven't increased, the cost to maintain a home hasn't decreased, etc.  I think even the trend line is a bubble created by the propaganda of the "American Dream" of home ownership.  At best, that trend line should be flat, IMO.  A ways to go, IMO, to reach a rational price for roof.

HarryM's picture

I'm no expert , but it seems clear to me that as inflation pushed the price of materials and labor up , the cost to build a house also rises.

Land prices differ due to supply and demand, ie - an acre in Manhattan is not equal to an acre in Alaska where there is virtually an unlimited supply.

The big bounce up in 2000-2006 was artificial , suddenly money was falling from the heavens and everyone was approved for a loan no matter how ridiculous the price per square foot.  

Loans were approved with almost no money down and  proof of income was not required.

The real estate appraisers were not basing the value of a home on cost to build , but on previous sales.  The true cost to build is tied to inflation , not the builder's profit margin.

Rather than the usual 20% percent profit , the builders were pulling down 100%-150%


Eventually it finds equilibrium -

Other than that ,the only thing that kills real estate is over building or a decrease in population


Spigot's picture

Not buying this...yet. Show me a trend, not a blip, and I'm a believer. Too much data is FUBAR these days. I trust nothing. There has to be a strong turn in unemployment, as well as income, and healing in outstanding debt in the private sector for me to believe blips.

FHA is the mortgage market these days. This supports the bottom tier of prices.

20% of Dayton, Ohio homes are unoccupied. That's a gut shot wound to the midsection of the US. Until that and other similar vacancies are healed I'm not a believer.

BTW this *IS* an election year and whoever is supporting Obama who owns or controls data related to the economy has a very strong motive to alter data to the good side, IMO.

Will add that 30 yr interest rates have been rising, and that sales of the very highest end of the RE market can significantly skew overall ###s when sales are so abysmal. The fucks at the high end have plenty of money (to pay millions). The fucks at the low end are scrambling to get in before rates rise more. That's my read.

eatthebanksters's picture

Only when we can see the supply start to diminish will there be a chance for the housing market to bottom out and start its comeback.  I think there will be a few false indicators in the future...why, because it is not in the banks interest to tell the truth about the number of distressed properties that are actually out there.  An effort will continue to bemade by TPTB to blur the info on distress, defaults, foreclosure sales, REO numbers and shadow inventory.  By giving the banks the monetary lifeline, the Feds have extended the length of the housing debacle.  The banks now have the staying power to trickle inventory on the market and support prices.  If and when jobs formation begins to occur I would bet that the spigot is opened wider and the market will recover sooner. I don't believe a word about this shit that inflation is blowing up Shiller's studies.  The Case Shiller Index is a measurement that has its place; it's never been the end all but it's been a solid indicator.  If you really want to know what the fuck is going on,j ust get out on the street and start asking people...you'll find most of your answers there.  BTW, don't ask the NAR, they were off by as much as 20% in their reporting of homesales for the last 5 years.  You could lose some real money using that info.

skepticCarl's picture

"Only when we can see the supply start to diminis"...

Adler covered this well at the end of article, especially with the final chart.

spooz's picture

Barry Ritholtz does not agree with you. He dismisses a 2 month old data series during a 72 month slide.  


Lee Adler- The Wall Street Examiner's picture

The data is not 2 months old. It is 5 months old. 

Temporalist's picture

I'm sure the position that the high exalted wizards in government and wall st. would take is "But interest rates won't rise. It hasn't happend in 30 years."


LowProfile's picture




But that still won't help housing, because... Well... You can't print your way to prosperity, and printing doesn't lead to rising wages.

tonyw's picture

"The Case Chiller data represents the market more than 5 months ago." How difficult would it be to create a system that was bang up to date? Hint, not very!