Everyone’s an Expert in Real Estate — So Who to Believe?


Doing my best Seinfeld query: “What’s the deal with the Case-Shiller Index? Is it a case study in how to be a shill for the sensationalistic media?”

 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!



Filed under real estate, redwood city

5 responses to “Everyone’s an Expert in Real Estate — So Who to Believe?

  1. Ed

    there is this substantial clarity:
    “… the latest (2008 Q1) S&P/C-S US and OFHEO P-O differ little in their inferred U.S. national housing overpricings of 32% and 28%, respectively.”

    Please take the time to read the URL’s content, which the news media keep from you for (their advertising revenue) cause.


    THERE’S NO CONFLICT OF INTEREST. Shiller is one of the few bright lights who knows what’s really going on and shares it with the rest of us.
    Housing cycle is 18 years. 9 years up, 9 years down. The top of the housing market was June 2006. That means that you won’t see a true bottom until about 2015. Banks/financials will bottom at about the same time.

  3. Thanks, I appreciate your comment, and you’re certainly entitled to your opinion. The 9 years up, 9 years down thing — out of curiosity, where does that stat come from, and are you saying it’s a national thing or a regional thing? If it’s a national housing average, then that’s akin to saying there’s a national weather average. The SF Bay Area’s population is expected to increase by over 2 million people over the next 30 years. Job growth, biotech, nanotech, high tech — sorry, we’re just not experiencing the levels of financial or real estate despair as other parts of the country. I’m not saying everything is rosy here — sure, there are regions around here that are hurting. But overall, having lived here my whole life, I just don’t see the Shiller index having any relevance at all to our housing industries — people from across the country and all over the world continue to flock to the San Francisco Bay Area. The warm climate, beautiful setting, recreational activities, top universities, and career opportunities are all factors in attracting newcomers. Over the next 20 years, the Bay Area will be home to more than 8 million people — a 16 percent increase over the current population.

  4. Ed

    Of course, location needs specifying.
    Nationally, one had 9 years up, and (an extrapolated) 4-plus years down. See second chart here (mine)
    and another’s statement here

    The SF metro area S&P/Case-Shiller nominal prices show -23% from the early 2006 peak; and the most volatile of their composite indices, the 10-city, is -18% from its same time peak. “It can’t happen here” REWRITE — it is already happening.

  5. You know, statistics are a nice way of showing historical trends and all, and provide possible predictable outcomes, but they’re no way indicative of trends in every single individual market, especially the Bay Area. Sorry to disagree with you. If you’re analyzing the stats from the comfort of your desk in Colorado, or Nevada, or New York, those stats are going to be a lot less believable to me than if you were here “in the trenches” talking to buyers and sellers in the SF Bay Area every day of the year.

    In our market here, again sorry to break this to you, but statistics become absolutely irrelevant when demand exceeds supply. Doesn’t matter what 10-city index or composite you’re looking at, but when you have 10 buyers all bidding on a house in Palo Alto that will spend whatever it takes, even $300K over asking price so it assures them their kids get into the PA Unified School District – I just can’t imagine that a single one of them is going to offer lower than asking price because a statistic said the trend is going downward. Buyers have mind-numbing money here, and they’re apparently not afraid to spend it, and will ignore what Mr. Shiller has to say in the process.

    Sales activity and prices in many desirable neighbhorhoods just have not, on the whole, been crashing in markets like Los Altos, Palo Alto, San Carlos, Menlo Park, Atherton, and many others. If you’ve sold a home in the Bay Area in the last year or two, and especially in one of these markets you’d know that they’re far from slowing down. Sure, there’s peaks and valleys throughout the year, there always are, and to reiterate, I do realize it’s not rosy everywhere – Shoreview in San Mateo, east Menlo Park, Fair Oaks, Alameda County, those areas are not doing so hot. No one knows when those areas will rebound. But to say “it’s already happening here” is just blatantly untrue as a blanket statement for all of our Bay Area markets. Call me overly optimistic, or naïve, but articles like this one – http://www.insidebayarea.com/sanmateocountytimes/ci_9652198 – reinforce what we already know about our region. We hear what you’re selling, Mr. Shiller, but we’re not buying it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s