Print

Each month, the media lines up to read the results of the S&P/Case-Shiller Home Price Indices. This group of indices are generated and published by Standard & Poor's and Fiserv Inc. Keep in mind that these indices are maintained by the Index Committee members drawn from Standard & Poor's, Fiserv CSW, and so-called “leading industry experts.”

The objective of these indices is to measure the growth in value of residential real estate regions across the U.S. The total report includes 23 indices - 20 metropolitan regional indices, two composite indices and a national index. Perhaps the most talked about is the 20-city housing price index.

Despite having access to a tremendous amount of data as a primary contributor to these indices, Mr. Shiller seems to be about as lost as Ben Bernanke when it comes to real estate forecasting.

Remember, Shiller’s role in the construction of these indices is that of monthly data analysis, not real estate forecasting. Despite this, the media lines up to report what he has to say regarding forward-looking estimates of the housing market; something he has been highly unsuccessful in providing for several years now.

As his documented record shows, Shiller has flip-flopped numerous times on his housing forecasts over the past few years. Upon full examination of his track record over the past few years, rather than a forecaster, I would classify Shiller as a broadcaster.

Credible forecasts are made over a several-month or several-year period, and they hold. When adjustments are required, they aren’t made each month, but over a several-month period. While monthly data might be helpful to analysts as a source of generating knee-jerk activity, such a short-term outlook does nothing to help potential homebuyers who look for trends instead of monthly swings.

Furthermore, monthly forecasts do not provide any value when you alternate between being bearish and bullish. When you see these monthly flip-flops, you should not mistake them as forecasts. They are nothing more than broadcasts. Broadcasts serve no other function than to create confusion within the market place. However, rather than place blame on Shiller, the media is to blame because they have positioned him as a forecaster when in fact he is merely a broadcaster.

In America’s Financial Apocalypse (among other things that have materialized) I forecast a median house price decline of 30% to 35% from peak levels reached in mid-2006. The book was released in late 2006. This is close to where we are today (see reference 1 at the end).

Since 2007, I have insisted the housing market would get worse in coming years. I stand by my original forecasts made in my 2006 book. As you can imagine, there have been no real improvements to the U.S. housing market in 2010, despite claims made by the establishment (Washington, Wall Street, real estate shills, the media, academic economists and others tied into the system).

The national median existing home price for all housing types was $182,600 in July, up 0.7% from a year ago. Distressed home sales accounted for 32% of transactions in July (unchanged from June), versus 31% in July 2009.

Now let’s have a look at what the real estate industry’s main cheerleader and clown has to say. Quoting Lawrence Yun, chief economist of the National Association of Realtors (NAR)...

“Thanks to the home buyer tax credit, home values have been stable for the past 18 months despite heavy job losses,” Yun said. “Over the short term, high supply in relation to demand clearly favors buyers. However, given that home values are back in line relative to income, and from very low new-home construction, there is not likely to be any measurable change in home prices going forward.”

Once again, Yun is dreaming. Over the past few years, Yun has made a name for himself as the “Jim Cramer” of real estate forecasting (see reference 2 at the end).

While home prices are back in-sync with incomes in a FEW cities, in the vast majority of cities home pricing remains high relative to median incomes. Incidentally, most of these cities never experienced much of a bubble in housing.

The Housing BIG Picture