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Hit me with a stick! Dr. Robert Shiller says “Home Price Upswing Impressive,” then tries to down play the data so it does not hurt Case/Shiller Index investors?
I used to publish technology and investment magazines. We talked a lot about corporate performance. It was always astounding that some junior writer would report stellar quarterly corporate numbers then have the temerity to suggest that these seasoned senior managers may not repeat next quarter. It they were following and reporting deeper trends and context there would be no complaint, but they were not typically doing this. They were taking snapshots and speaking in generalities. This is our well documented problem with Karl Case and Robert Shiller and their much followed S&P/Case Shiller Index. They are kind of surprised at the positive moves in housing sales volumes and values. These trends have been in place since March 2008.
Two cities had month-to-month price declines:
None of the 20 cities had a price increase over the year.
“It has been an impressive turnaround. This is a huge, sudden, upward swing,” Shiller told CNBC as reported by MoneyNews & NewsMax.
A quickening recovery in home prices has Shiller, suggesting that the
Home prices in twenty major metro areas rose 1.4 percent in June from May, tripling the modest 0.5 percent increase of the month before. The previous, smaller increase was the first in almost three years. Housing had declined by roughly 50 percent from its 2006 peak, according to the S&P/Case-Shiller Indices. “I think it might represent a change in trend. The only doubts about it are that the market is rather abnormal now with all these foreclosure sales. But the outlook has certainly changed with this data,” Shiller said.
But not to carried away and not completely destroy those clients shorting his housing index fund he was quick to warn that data can be deceiving. He does not yet believe that a big shift in house prices is imminent. “I didn’t say we reached a bottom. I said that this is very suggestive of a major turning point,” Shiller pointed out. “We’ve seen other corrections like this that were reversed.” Tellingly, the exchange-traded instrument created by Shiller to track home prices, MacroShares Major Metro Housing Up (UMM), continues to predict a slow slog out of the current slump, putting home prices up just 6 percent five years from now. “That is not a huge recovery,” Shiller notes.
In addition, the overhang of foreclosures does not bode well, despite the short-term uptick on home sales. “There’s a lot of problems out there. And I think there’s a real possibility we’re going to see some bad news, and it’s going to be a reversal again,” he warns.
In mid-July, Shiller told Moneynews.com that, although the housing market could be approaching a bottom, prices might remain in the “doldrums” for years to come as the United States remains in a “liquidity trap” comparable to the one it faced during the Great Depression.
Though stock market prices are valued fairly now, Shiller said, equities remain a “risky” investment because the
OPINION – If Shiller reports a sea change in residential real estate values he screws his UMM short sellers, betting housing will go down further. So he is projecting a history defying 6% change over the next five years.
Add the fact that he trades on generalized numbers necessary to create an index, he is not reflective of the real market because an index is an arbitrary representation of the value of a commoditized necessity.
Houses, unlike commodities are hyperlocal, subject to local economics and a plethora for fundamental, technical, cultural and personal values beyond the reach of a trading index.
Americans buying houses and investing in residential real estate should look well beyond Dr’s Karl and Bob and their money center centric analyses.
3D Market Chess and the reality disguised by monolithic market data
Personal Real Estate Investor Magazine Note: The inspiration and information behind this note is borrowed from a 6/12/09 article, “Housing sales inventory out of balance in metro
Superficially the
| | Month’s Supply |
| <$ 85,000 | less than 30 days |
| $86,000 - $300,000 | Less than 6.68 months |
| >$460,000 | 16 months |
| >$1,000,000 | 60 months |
Investors are buying foreclosed homes which drag down an overall market. Homes in higher price ranges are selling slowly as traditional buyers are reported to be staying in their current homes because they are waiting for the recession to end and jumbo financing often used to buy pricy houses also is tough to get. Buyers with cash and credit who can get high-end house at a good prices as sellers are more willing to negotiate.
This disparity between low- and high-end for-sale housing inventories is expected to continue for the near future as the market stabilizes. This market behavior is typical of major western markets and shows the value of investors in a market as they remove inventory by buying performing rental properties. The continued negative reporting from the likes of S&P/Case Shiller ensures uncertainty and ensures investors are not competing with retail home buyers.
Look for the article in REBizPeople.com - our new electronic newsletter and alert service. To subscribe go to REBizPeople.com
Markets move on basis of space (geographic location), time (cycle start and velocity) and value (price point). Significant transaction volume is occurring in most markets in the $0 to $250,000 range, less so in the $250,000 to $420,000 and even fewer in the $500,000 plus or jumbo markets. First time home buyers are back and investors are leading the way out of the malaise. Sky Mikesell, Retire-on-Rentals Charlotte, NC finds that that available homes in the $75,000 to $200,000 are drying up while the inventory of $400,000 to $750,000 middle management homes continues to build. Tom Caldwell, Brewer Caldwell and Alan Davis of GoRenter.com (
An available well priced house in these markets is now receiving multiple offers over the asking price. Investors are leading us out of this doldrum
THE DISUNITED ESTATES OF
I get amusement from any audience when I point out that there are (at least) two
This could not be more true of real estate markets. Our magazine could never have been published in New York or many other markets. Our home is
The West is often first to start a trend and first to see it depart. Then this generalization is granulated by thousands of geographic micro-markets in the West. The South may be first to follow, then the
INCONVENIENCE BEGETS UNINTENDED MISREPRESENTATION
One big number gets the news headline, but the inconvenient and often ignored truth is that housing data refuses to comply.
The national indexes which track housing are confused by sampling errors, agendas or most misleading traded assets reporting disciplines. The measurement, presentation and pace of reporting stock market data and indices does not work well when applied to housing. It’s a castle not a commodity and unlike classic fundamental and technical analytic rules, housing requires additional cultural and personal measures to score as a utility and an investment. This economic index laziness has emphasized consumer malaise.
Bought and financed well, then managed for cashflow, tax and appreciation efficiency, most residential income properties over time, are the equivalent of the Wall St. Holy Grail, “the ten bagger” or a stock that returns ten times the investment made. Did someone say cash-on-cash?
God Bless and Great Investing.
Sarbanes Oxley brought us the mark-to-market asset valuation rule. This means that the current value of a traded asset, as set by daily stock market share prices or indexes is the determining market value of a specific traded security held by an individual or entity.
Does market-to-market automatically mean a non-traded asset, such as real estate, should be valued in the same way? In a pure “value snapshot” corporate accounting maybe, but even this is a stretch as the replacement value may not be covered by current market value, especially in a down market. Also does this mean we ignore the reason for this asset acquisition, value and the future!
Real estate is bought for the long term and seldom as a trading asset unless trading real estate is the business at hand. Land aggregators, entitlement companies and wholesalers buy and trade land but this is not a majority strategy, especially when applied to residential property.
Ninety eight percent of all real estate purchases are buy and hold.
The average of all residential holding periods is five to seven years, feasibly bridging most market pauses on downturns. Hence the lore that time heals most real estate mistakes.
With the current lending and bank credibility crisis, the discussion is how we evaluate real estate for the purposes of a quick trade? Mark-to-market applies in preparing for quick liquidation for the purposes of cleaning up the books, or mark-to-model to arrive at the real value reflecting acquisition purpose and real hold periods? This is especially true of a family home purchase decision.
Bank residential valuations and current appraisals are only meaningful for securities filings, bank regulatory filings and annual reports and just maybe for the 8% of all residential real estate that is likely to be in the market over the next twelve months. But not for the rest of us, homeowners and investors who are on no need of selling. We should not care.
The “we told you so” headlines from liberal think tanks like CEPR celebrate the fact that American families have lost nearly $6 trillion in housing value. This claim only works if they use the equally agenda driven S&P/Case Shiller housing hedge fund trading index. (See Personal Real Estate Investor Magazine Jan-Feb 09 for S&P/Case Shiller expose).
Newsflash – 92% of the folks that own homes are that are not being lost to foreclosure or being sold over the next 12 months make mark-to-market valuations irrelevant. If you spread the expected sales rate of this residential housing stick at five percent a year over the next 20 years, it not only will have returned to peak market values (estimated at four years,) and accrue a the historic four to five percent we have experienced since 1929. Mark-to-model applies and the $6 trillion in supposed losses changes rapidly to a positive number.
We are guilty of using the same generalizations and averaging to get to a round assumption, but that is what these indexes and reports do to get to their self-serving pronouncements.
Real estate is local and your wise purchase in your neighborhood may have undergone a minor and in some case no price correction. In every bad real estate story, there is always a silver lining.
Www.PersonalRealEstateInvestorMag.com.
