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Posts Tagged ‘Robert Shiller’

Home Prices: To Tell The Truth, The Whole Truth And Nothing But the Truth (Sort Of)

December 7, 2006 | 8:15 am | |

Priceless…

I got the idea for this post after trading emails with David Leonhardt of the New York Times the other day as he worked in his interesting Economix column: The Hidden Truth About Home Prices [NYT] and the companion article More on Housing Prices [NYT]

Its very difficult for most consumers, government officials, academia and real estate professionals to get a real world gauge on how a real estate market is actually doing. Tried and true methods all seem to have some sort of flaw and when a market is in transtion, the changes become even more pronounced. And then throw in the source of the information, with the presence of spin, makes the effort even more daunting. Those covering the market, whether it be Big Media and the blogosphere tend to gravitate towards whatever is released that day.

There are two schools of thought on housing stats:

  • Price indexes– These are generally based on repeat sales of the same property over time or an aggregate analysis of housing prices, with some adjusted for seasonal changes and/or inflation.
  • Housing prices – These results are based on an aggregate summary of the sales that transferred during the period and can be skewed by the mix.

You’ve got producers of indexes telling you that prices are less meaningful, yet users of the indexes often view them as a “black box” and don’t grasp how the information was calculated (do we hear “seasonally adjusted?”) Indexes tend to be created for macro markets because the data set needs to be large. Cycnicism has been a detriment to reliance on indexes.

Those that rely on housing prices tout that they are the real thing yet most resources for housing prices tend to be non-economist types, trade groups and real estate firms, because they tend to be easier to generate and report than an index. There are a growing number of market studies put out in the public domain by local real estate brokers and agents (and of course, appraisers) to try to bridge the gap between the national stats and local markets. However these reports are often limited by the size of the data, limited understanding of what the data really means and are clouded by their intentions.

There are generally four sources of housing stat interpretation:

  • Government – namely Commerce/Census/OFHEO
  • Economists – Chicago Mercantile Exchange (Shiller) and other “Starconomists” like Roubini, Zandi (Moody’s) and others.
  • Real estate brokerage trade groups and firms – The National Association of Realtors (NAR) is the primary source of information on national housing and local brokerage firms. Regional MLS systems and brokerage firms are the other primary provider.
  • Online services like Zillow.com, RealtyTrac, ZipRealty release housing stats but generally don’t provide historical trends to include for perspective.
  • Real estate appraisers, consultants and analysts I would fall into this category as well as other housing stats from other markets presented on Matrix. We tend to relay on actual housing prices and interpret them without the trade group or incentivized spin, but its not without its faults either. The data is generally influenced by mix of housing stock that sells so its important that this group bridges the gap between the results and actual conditions.

Local, National and Internet:

  • National housing stats are reported religiously by nearly all national media outlets yet don’t have a link to local markets. What happens in a neighborhood may or may not comparable to national markets and if the results are consistent, its really coincidence. NAR has touted national housing stats as an argument for real estate as a good investment but it doesn’t reflect local volatility.
  • Local housing markets tend to have smaller data sets and are more affected by the mix of what sells. They can have a powerful affect on local moods but are often written by marketing departments as public relations pieces for trade groups and firms with a vested interest in the results and how it affects the bottom line.
  • Internet is an important delivery mechanism for real estate stats, but are often less thought out than traditional sources because many producers of this information don’t have direct real estate experience, but rather have online experience from other industries. This isn’t necessarily a bad thing, because bad habits and bias may not be developed but often, inappropriate uses of month over month stats exagerate certain market conditions.

Pitfalls and/or spins betrays most sources:

  • New home sales – Government stat quality is suspect and not necessarily unbiased. You just have to take a look at the widely quoted housing stats like New Home Sales from the US Commerce Department [pdf]. You just have to read an excerpt from the October release to see what I mean: This is 3.2 percent (±11.2%)* below the revised September rate of 1,037,000, and is 25.4 percent (±10.0%) below the October 2005 estimate of 1,346,000.
  • Median sales price (National Association of Realtors) – There is an emphasis on the national numbers in their series of reports on new and existing home sales. They do break up the country into quadrants, but all real estate is local. They have such an opportunity to gain the public trust but usually provide hard spin to the results and are very inconsistent in the commentary from month to month.
  • Sales price index (OFHEO) – The median sales price includes refinance data and excludes sales with non-conforming loans (mortgages greater than $400,000).
  • Housing price index (Chicago Mercantile Exchange) – Robert Shiller’s repeat sale index lags the market by about 4 months and is targeted towards investors, not consumers. Trading volume is growing but is still too small to really provide a sense of market direction.

Since all politics real estate is local, but reporting of larger data sets is easier but less relevant, its very difficult for the consumer of real estate market information to know what, in fact, the truth is.

At the end of the day, real estate truth is open to interpretation.


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[CME Housing Index] Miami Cold, Chicago Hot (Less Cold)

October 16, 2006 | 12:01 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options. Here’s a great article on how it works.

Its been a few months since I covered the index because of the light activity.

Recap
Miami continues to lead all markets, followed by LA(still, why LA?), New York and San Francisco. Chicago showed the lease activity with Denver close behind.. To date, 1,520 contracts have been purchased with an open interest value of $90,273,665.

Pricing for the 10-city index shows a 7% price drop through August 2007 which is a decline over the 4.82% decrease seen in that indicator 2 months ago. The price declines ranges from -5.7% (in Chicago) to -8.6% (in Miami). All 10 cities showed declines in this week’s figures.

TFS has started to included OFHEO swaps. It makes sense that OFHEO would be used since its such a widely read indicator and the official market position of the US government. More stuff to gamble on, I suppose.




See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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Location, Location, Location Becomes Housing, Housing, Housing

September 22, 2006 | 9:43 am |

In Randall W. Forsyth’s column Fed’s Worry? It’s Housing, Stupid [Barrons subsc]:

To be sure, the FOMC made sure to keep up appearances by mentioning its concern about inflation. They’d be drummed out of the central bankers’ club if they didn’t. “Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures,” which the FOMC cut and pasted from its Aug. 8 directive…

It’s clear why inflation is off the Fed’s worry list. But why does housing top it? It’s not just that the Fed inflated the housing bubble (which it did) to offset the effects of the bursting of the tech bubble (which it also blew up.) It’s that housing busts hit the economy far harder than equity collapses.

This is consistent with international housing busts based on a study by International Monetary Fund in 2003 [pdf], that Mr. Forsyth cites, for the following reasons, housing market corrections:

  • impact consumer spending more than stock market corrections
  • impact the banking system
  • influence other asset classes like equity prices
  • result from credit tightening. Home values decline but mortgages do not decline at the same time.

Because of the last point, making credit easier to get (ie lower mortgage rates) probably won’t solve the current housing problem. Current affordability problems are impacted more by housing prices than by mortgage rates or tight credit. In fact, credit has never been easier to get and mortgage rates are relatively low and seem to be poised to go lower.

The CME Housing Index seems to support the argument that housing prices are going to decline. [CNN] Trading results were consistent to the actual index for August suggesting some predictive abilities of housing prices, even though the trading volume is too thin to be fully reliable.

Robert Shiller, whose company developed the index, suggests that the index would likely exagerate the decline somewhat due to the risk premium considered by the investors, since they are investing for their opwn protection, not for the local housing markets.


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[Getting Graphic] Housing Prices: Drawing The Line

September 6, 2006 | 6:45 am | |

Getting Graphic is a semi-sort-of-irregular collection of our favorite BIG real estate-related chart(s).

Click here for full graphic [NYT]

Here’s a pretty intimidating chart on housing prices over the past 116 years adjusted for inflation by noted economist Robert Shiller. I missed this chart when reading my copy of the New York Times but luckily I caught it in Curbed.

Its a pretty wild chart but something doesn’t seem right. Or is it? Matrix readers, can you share your thoughts?


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[CME Housing Index] Volume Remains Weak, Discounts Reduced, % Difference In 6 of 10 Markets Reduced

August 14, 2006 | 12:01 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Recap
Since nearly the beginning, Miami has lead all markets, now with 273 contracts, followed by LA with 192 and New York with 170 contracts (only 1 new contract since last week though). Denver remains on the bottom of the list with 18 contracts. To date, 1,109 contracts have been purchased with an open interest value of $67,550,518. Should we be concerned about the lack of activity? Probably not.

Pricing for the 10-city index shows a 4.64% price drop through May 2007 which, oddly enough is a slight improvement over the 4.82% decrease seen in that indicator last week. The price declines ranges from -2.39% (in Denver) to -6.58% (in San Francisco). All 10 cities showed lesser declines in this week’s figures over last week’s figures.



See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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[CME Housing Index] 10-City Index Showed a 4.82% Decline To May 2007

August 4, 2006 | 6:30 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Recap
Miami leads all markets with 266 contracts, followed by LA with 188 (why LA?) and New York with 169 contracts. Denver is on the bottom of the list with 13 contracts (none sold for several weeks). To date, 1,064 contracts have been purchased with an open interest value of $65,055,830. Still not a lot of activity.

Pricing for the 10-city index shows a 4.82% price drop through May 2007 which is a slight decline over the 3.75% decrease seen in that indicator 2 weeks ago. The price declines ranges from -2.97% (in Denver) to -6.95% (in San Francisco). All 10 cities showed declines in this week’s figures.



See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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[CME Housing Index] 10-City Index Showed Less Decline

July 18, 2006 | 12:14 pm |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Trading for this new index concept began on May 22nd and trading still appears relatively light so I only plan to post an update once per week.

Recap
Miami leads all markets with 212 contracts, followed by LA with 140 (why LA?) New York took over 3rd place from San Diego with 82 contracts. Denver is on the bottom of the list with 13 contracts (none sold this week). To date, 773 contracts have been purchased (124 this week) with an open interest value of $47,031,375. Still not a lot of activity.

Pricing for the 10-city index shows a 3.75% price drop through May 2007 which is a sligh improvement over the 4.02% decrease seen in that indicator.

See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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Housing Futures Need To Be On A High Enough Frequency To Be Heard

July 18, 2006 | 11:56 am | |

At Matrix, I have been following the CME Housing Indexes that are based on the work of the noted economist Robert Shiller and others. Bob has been discussing this in various venues around the country as a way for the investors to hedge their bets.

In Days of Housing Futures Past [TheStreet.com] Howard Simons makes the case that these housing contracts, based on ‘old’ data and with sizable size issues, aren’t such a good idea. Its a really well thought out article.

Here’s why:

  • Past performance may not predict future results
  • All futures markets are based on the principle of indifference.
  • Futures markets also have a large measure of insurance built into them.

This is not the case with housing futures. Each of the contracts is based on the S&P/Case-Shiller (CSI) home price indices. They cover metropolitan areas of Boston, Miami, New York, San Diego, San Francisco, Washington, D.C., Chicago, Las Vegas, Denver and Los Angeles, as well as a composite national index. That in itself does not present a problem; we have close to 25 years of experience trading index-based, cash-settled futures on things such as stock indices.

Frequency is the problem:

Unlike a stock index that is refreshed several times a minute, the CSI indices are released at 1:15 p.m. Central Standard Time on the last Tuesday of every calendar month. The release is of necessity for data collected for previous months. For example, the August report will cover the data collected for April, May and June in each reporting region.

Housing futures are being marketed as an indirect way of playing rising long-term interest rates. The answer is simple: If you think rates are going higher, sell bond futures or something similar. They are a direct play on interest rates.

The basic premise of the author is that housing futures are really not a play on the future, but rather a play on the past since the basis for the index is relatively dated by the time its used. The low volume of home sales tracked in the index also make it less reliable.

Perhaps we should hedge our bets on cheddar cheese and non-fat dry milk instead [Matrix]?


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[CME Housing Index] May 2007 10-City Index Down 4.02%

July 14, 2006 | 6:36 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Trading for this new index concept began on May 22nd and trading still appears relatively light so I only plan to post an update once per week.

Recap
Miami leads all markets with 196 contracts, followed by LA with 114 and San Diego with 58 contracts (none sold this week). Denver is on the bottom of the list with 13 contracts (one sold this week). To date, 649 contracts have been purchased (only 14 this week) with an open interest value of $442, 853. Still not a lot of activity.

Since the contract activity is still light, I wouldn’t place much faith in the pricing yet for the individual cities. Pricing for the 10-city index shows a 4.02% price drop through May 2007.

See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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[CME Housing Index] Number Of Contracts Probably Better Indicator Than Prices Right Now

July 7, 2006 | 6:14 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Trading for this new index concept began on May 22nd and trading still appears relatively light so I only plan to post an update 1-2 times per week.

Recap
Miami leads all markets with 183 contracts, followed by LA with 112 and San Diego with 58 contracts. Denver is on the bottom of the list with 12 contracts. To date, 633 contracts have been purchased with an open interest value of $38,355,918. Still not a lot of activity.

Miami shows the largest price decline with a 7.67% drop. The overall 10-city index shows a 4.64% drop on May-07 contracts. Since the contract activity is still light, I wouldn’t place much faith in the pricing yet for the individual cities. Low data set = erratic pricing. Give it time however, this seems like a useful investment tool for mortgage originators to hedge their bets but probably not practical or affordable for most consumers.

If you believe that there is enough data for the 10-city index to start seeing a trend, it looks like investors are expecting something less than a 5% price correction over the next year which seems consistent with the whole soft landing over-mentioned theory. The correlation between the number of contracts sold and general concern over each housing market seems more relevant right now than pricing.

See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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[CME Housing Index] Miami Contract Activity Continues To Surge

June 26, 2006 | 12:05 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Trading for this new index concept began on May 22nd and trading activity is rising steadily.


Recap
Like last week, Miami leads all markets with 119 contracts, followed by LA with 91 and San Diego with 52 contracts. Denver is at the bottom with 13 contracts.

Of the 10 markets that have indexes, Denver replaced New York as the only market to show a gain in the contract price (May 2007) this week, up 0.49%. Miami showed the greatest price weakness at -7.83% followed by San Diego at -7.29%. However, there was significant deterioration in most of the city indexes for May 07 contracts.

It would appear that the number of contracts sold is consistent with the most vulnerable housing markets.

See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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[CME Housing Index] New York Remains At Top, LA Falls To Bottom

June 20, 2006 | 12:01 am |

Chicago Mercantile Exchange (CME), along with noted economist Robert Shiller’s MacroMarkets, as well as Fiserv and Standard & Poor’s, have created a market exchange for futures and options contracts on home prices in ten cities in the United States. Here’s how it works. The data feed from the index is provided to Matrix from Tradition Financial Services (TFS), a broker that executes housing futures and options.

Trading for this new index concept began on May 22nd and trading volume is increasing, especially in the more volatile market (which makes perfect sense). For now, I plan to post an update once per week.

Mid-Day Recap
Miami continues to lead all markets with 93 contracts, followed by LA with 79 and Las Vegas with 52 contracts. Denver trails all cities with 13. There is a growing correlation with higher trading activity and greater volatility. This pattern is expected to increase as investors in those market are more motivated to hedge their bets.

Like last week, of the 10 markets that have indexes, only New York showed an expected gain in the long contracts (May 2007), up 2.08%. Los Angeles dropped sharply by 6.48%, followed by San Francisco at -4.18%.

See archived posts in Matrix that cover the CME Housing Index

Delayed Futures & Options Quotes (up to 10 min)


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