by Calculated Risk on 12/21/2009 09:34:00 AM

Yesterday I was sent an email arguing that the Fed was now using the Case-Shiller index for the Flow of Funds report. This is not correct.

Here is what actually happened (ht Nancy Vanden Houten at SMRA):

1) Starting with the Q3 2008 report, the Federal Reserve switched from the OFHEO / FHFA house price index to the LoanPerformance house price index. From the Fed in the notes to the Q3 2008 report:

The market value of residential real estate (B.100, B.102, and B.103) has been revised from 2000:Q1 forward to reflect improved data sources. The value of owner-occupied housing in 2001:Q3, 2003:Q2, and 2005:Q2 is now benchmarked to data from the American Housing Survey, and changes in the value of single-family homes in non-benchmark quarters are now estimated using a repeat-sales house-price index from LoanPerformance (a division of First American CoreLogic). Previously we used a price index from the Federal Housing Finance Agency (formerly the Office of Federal Housing Enterprise Oversight).

2) LoanPerformance revised their index in Q3 2009, and this showed up as a substantial change for household real estate value. From the Q3 2009 report:

The market value of residential real estate (B.100, B.102, and B.103) has been revised from 2000:Q1 forward to reflect revised data for the repeat-sales house-price index from LoanPerformance (a division of First American CoreLogic).

The reason this change wasn't obvious in Q3 2008 was that the value of household real estate didn't change significantly for the most recent quarters (although using the LoanPerformance index showed a larger bubble).

The following graph shows the value of household real estate from the Flow of Funds report for all the reports since Q2 2008.

Q2 2008 was based on the FHFA / OFHEO index (blue).

All other reports were based on the LoanPerformance index.

The LoanPerformance index was revised significantly in Q3 2009 (red).

Click on table for larger image in new window.

When the Fed switched to the LoanPerformance index there was a relatively small change to the value in Q2 2008, so I missed this change.

However when the LoanPerformance index was revised in Q3, the value of household real estate plunged by over $2 trillion in Q2 2009! That stood out.

Thanks again to Nancy.