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Tuesday, August 31, 2010

On Case-Shiller House Prices: October is the "Witching Hour"

by Calculated Risk on 8/31/2010 12:54:00 PM

As we've discussed for some time, the Case-Shiller index is seriously lagged to real time data. The release today was for "June", but it is really an average of April, May and June.

Home sales were strong in April, May and June, and then collapsed in July. And prices have probably been falling for two months now - but that won't show up in Case-Shiller until the end of next month or even October (the Case-Shiller release at the end of October will be for June, July and August).

Note: The title for this post is from Rolfe Winkler at the WSJ's Heard on the Street (last week): Housing's Witching Hour

[T]he S&P/Case-Shiller home-price index ... could be set for another leg down. The index is computed using a three-month rolling average, meaning last month's weakness really should assert itself in late October.
RadarLogic released a statement today: As Predicted, June S&P/Case-Shiller Home Price Indices Overstate Housing Market Strength
[T]he latest S&P/Case-Shiller home price indices show healthy improvement in home prices while other housing market indicators, including the RPX Composite price, show that housing markets are starting to weaken.

... We believe that these figures overstate the current strength of the U.S. housing markets. As we reported in this month’s RPX Monthly Housing Market Report, the RPX 25-MSA Composite Price declined 0.2% through the end of June on a year-over-year basis. ...

The conflict between the strength expressed in the S&P/Case-Shiller indices and the weakness apparent in other housing market indicators likely arises from the fact that the S&P/Case-Shiller indices are calculated using data from transactions that occur over a three-month period. As a result, the indices smooth over recent price movements and can take a number of months to reflect price fluctuations.

... Our concern is that, as we saw in spring 2009, the only effective stimulus of new housing demand will prove to be a precipitous decline in home prices. Our current analysis shows early signs that such a dynamic is approaching.
The CoreLogic repeat sales index showed prices were flat from May to June (CoreLogic uses a weighted 3 month average and picks up the trend change a little quicker than Case-Shiller).