Housing Data Is Old and Moldy

Consumers rely on a monthly parade of reports to get a sense of the state of the U.S. housing market, thinking that the data offer near-instantaneous insights in much the way that a stock-market index does.

Seeing housing this way is a mistake: The information available is hobbled by the very nature of the market itself. Buying or selling a house is a slow, lumbering, inefficient process that takes months to complete. There is a significant lag time from a meeting of the minds between a buyer and a seller to when the sale gets reported to the public. Yet we hang on each report and the bold headlines they inspire without proper context or understanding.

By taking a look at the two housing reports released this week we can see why the information available to the public is so deficient, if not misleading.

The most notable was Tuesday’s S&P/Case Shiller report — actually, a series of reports. However high your regard may be of Case Shiller and its co-creator, Yale economist and Nobel laureate Robert Shiller, there are real weaknesses in the methodology.

On the surface, the latest 20-City Home Price Index seemed to suggest some slowing in the market, with a 9.3 percent rise in existing housing prices in May, a slower rate of increase than in the preceding two months.

This edition of the S&P/Case Shiller report, although labeled “May,” is the moving average of completed sales from March through May. If we assume their respective sales contracts were signed 60 days before closing, the report reflects the market period from January through March. And because it often takes several weeks from the time a buyer and a seller agree to terms and sign a contract, 30 to 60 more days might pass. This means the index probably reflects deals reached in the period from December through February.

If we pick January as the midpoint of the range, then the…

Read more at Bloomberg View

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