There Sure’s a Lot of Brain-Dead Misreporting About the Case-Shiller Home Price Index this Morning

There Sure’s a Lot of Brain-Dead Misreporting About the Case-Shiller Home Price Index this Morning

No, it’s not yet a reflection of home prices during the Pandemic. Be patient. Reporters or spaghetti-code algos should have read the methodology before misleading their readers.

By Wolf Richter for WOLF STREET:

OK, dear reader, I feel like I’m fighting a one-man battle against media misinformation or something. I didn’t want to descend into housing-data purgatory with you, and you didn’t want to either, but now we’re on the way after the horrifically brain-dead misreporting in the media about the Case Shiller Home Price Index this morning by lazy-ass reporters, or increasingly by spaghetti-code algos, who didn’t bother to read the Case-Shiller methodology – or better yet, my past articles about the Case-Shiller Index.

These brain-dead reporters – or the spaghetti-algos that wrote the reports – went like this: National home prices rose 4.8% year-over-year in April, during the peak of the lockdowns and despite the pandemic, showing how vibrant the housing market is.

But that is bull malarkey because the S&P CoreLogic Case-Shiller Home Price Index doesn’t work that way. It lags massively behind. With the Case-Shiller Index – my favorite home price index because of the way it is structured – you have to be patient. That’s its big drawback.

The Case-Shiller Index operates on a “three-month rolling average” basis. And the price data is collected from public records. So the release today, titled “April,” was the three-month moving average for deals whose data became available in the county deed recorders in February, March, and April.

There is also a time-lag between when a deal closes and when the data becomes available in the county deed recorders.

So what the Case-Shiller showed today were closings that had occurred in prior months and that became available in the county deed recorders in February, March, and April. This included some of the deals that closed in January and excluded some of the deals that closed in April.

This is not a secret. S&P publishes the methodology. And reporters should have studied it before reporting bull-malarkey and misinforming their readers, many of whom paid a subscription to be misinformed.

The Case-Shiller Index uses the “repeat sales method” where it compares the sales price of a house that sold in the current month to the price of the samehouse when it sold previously. To make it into the index, a house has to have been sold at least twice.

This sales-pair method makes the index immune to changes in the mix of houses that sold, which is an advantage over the common median-price indices. The index essentially tracks price changes for each house in the index separately over time and then builds an index out of the sales-pair data. The index provider also applies some algorithms to iron out certain issues, such as improvements made to the house over time.

First signs of the pandemic.

It is in the number of “sales pairs” in April where we can see the first impact of the pandemic. I will use the sales pairs of houses in the index for the five-county San Francisco Bay Area (counties of San Francisco, San Mateo, Alameda, Contra Costa, and Marin) because it is this area that went into lockdown before any other area in the US, on March 17.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.