Thursday, March 27, 2014

House Prices and Lagged Data

by Calculated Risk on 3/27/2014 02:55:00 PM

Two years ago I wrote a post titled House Prices and Lagged Data.  In early 2012, I had just called the bottom for house prices (see: The Housing Bottom is Here), and in the "lagged data" post I was pointing out that the Case-Shiller house price index has a serious data lag - and that we had to wait several months to see if prices had actually bottomed (the call was correct).

Now I'm looking for price increases to slow, and once again we have to remember that the Case-Shiller data has a serious lag.  (Note: the following is updated from the post two years ago)

All data is lagged, but some data is lagged more than others.

In times of economic stress, I tend to watch the high frequency data closely: initial weekly unemployment claims, monthly manufacturing surveys, and consumer sentiment. The “high frequency” data is lagged, but the lag is usually just a week or two.

Most of the time I focus on the monthly employment report, quarterly GDP, housing starts, new home sales and retail sales. The lag for most of this data is several weeks. As an example, the BLS reference period contains the 12th of the month, so the report is lagged a few weeks by the time it is released. The housing starts and new home sales data released recently were for February, so the lag is also a few weeks after the end of the month. The advance estimate of quarterly GDP is released several weeks after the end of the quarter.

But sometimes the lag can be much longer.  Two days ago, the January Case-Shiller house price index was released. This is actually a three month average for house sales closed in November, December and January.

But remember that the purchase agreement for a house that closed in November was probably signed in September or early October. So some portion of the Case-Shiller index will be for contract prices 6 to 7 months ago!

Other house price indexes have less of a lag. CoreLogic uses a weighted 3 month average with the most recent month weighted the most, the Black Knight house price index is for just one month (not an average).

But, if price increases have slowed - as Jed Kolko argues using asking prices - then the key point is that the Case-Shiller index will not show the slowdown for some time.   Just something to remember ...