What I’m referring to, is this article “Getting Case-Shillered”, which recently appeared in one of the industry pubs I regularly read. Here are the cogent highlights:
The S&P/Case-Shiller Home Price Index is the benchmark the financial press uses to tell us how terrible the housing market is.
One must wonder why.
The index’s findings are notoriously softer than the indexes used by the Office of the Federal Housing Enterprise Oversight, NAR, and even Realogy.
In 2007, home prices went down for the first time in decades, but by how much? OFHEO said by 0.3 percent, NAR 1.4 percent, and Realogy 1 percent. Case-Shiller? 8.9 percent.
Yale economist Robert Shiller, cofounder of the index, is scaring home buyers with proclamations that home prices “will fall further than the 30 percent drop in the historic depression of the 1930s,” as he told the Associated Press in April.
Prognostications like that are a problem because financial journalists … as well as securities investors and analysts, call his index “the best gauge” of real estate values. Since when do reporters .. REPORTERS for criminy sake!! (my interjected comment) feel the need to fluff a source, and why are analysts so enthralled with the index?
One reason might be its Wall Street seal of approval: It was launched to provide information for hedge funds. 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.
And guess what? Shiller is a founder and chief economist of Macromarkets.
I guess one could hypothesize that Mr. Shiller has a financial incentive to “scare” the market.
Hmm – can you spell CONFLICT OF INTEREST?
And what’s the deal with Robert Shiller? I mean, who is this guy?
Robert Shiller scored instant media celebrity when his 2000 book, ‘Irrational Exuberance,’ predicted the tech bubble’s explosion just weeks before the fact. Four years later, when he tried to apply the same principles to the real estate boom, he found out that all investments don’t behave alike. Shiller contended that rising home prices weren’t based in the fundamentals of population growth and supply and demand; they were bubbles, destined to pop. To the contrary, NAR economists predicted that market slowdowns would largely be gradual — a trend that’s playing out today. Shiller’s failed bubble scenario demonstrates that sometimes even smart guys get it wrong
So who, then, to believe? What about all those readers who post comments for every single real estate article out there? Surely they must have intelligent answers? Here was one I recently found:
“I’m confident the prices will keep dropping and foreclosures and defaults will outpace the ability to fix the issue.. Generally, the higher up the price ladder you go the more in denial a person is about the market.”
Ah yes, Nostradamus – that would explain how 3660 Tripp Rd. in Woodside, which was list priced at $4.495M, sold in 7 days and closed escrow at $4.71M. You are truly amazing, Kreskin!