[In The Media] Yahoo! Finance’s The Daily Ticker 3-21-12

Posted by Jonathan J. Miller -Wednesday, March 21, 2012, 10:39 PM
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Had a great conversation with Aaron Task at Yahoo! Finance’s The Daily Ticker on NAR’s Existing Home Sale numbers and the state of the housing. First time I’ve been on the show.

Why US Housing Indices Make Terrible Investment Benchmarks

Posted by Jonathan J. Miller -Tuesday, February 28, 2012, 3:00 PM
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[Source: PDF]

Analysts have had an easy time forecasting the future results of the Case Shiller Home Price Index with reasonable accuracy. This is because the 3-6 month lag from the actual “meeting of the minds” to reporting period results as well as the lower costs to acquire data to analyze.

If savvy analysts can accurately predict the index in the coming months, then how does this encourage investors to get on both sides of the trade. Call me crazy but if I knew what the index results would be in the coming months, that would mean that most market players would know and then it’s not possible to beat the market (sorry traders, but this is my weak attempt to talk like a trader).

The chart above is a forecast found in a recent housing study. It’s how I currently envision the US housing market given the millions of distressed property sales that need to go through the system.

The S&P/Case Shiller Home Price Price Index’s reason for being, as well as other competing indices were intended to be a benchmark for Wall Street to hedge housing using options (derivatives). This would have served a very logical and useful purpose to be sure but it has been a dismal failure. In one of the most volatile housing markets in history, trading volume has been anemic or non-existent, or at a fraction of the volumes needed to be an efficient market. Still, S&P/CS has become the consumer benchmark as the media grapples with how to characterize the market. The data problems and years of messaging bias over at NAR Research have enabled alternatives like S&P/Case Shiller and Corelogic.

The S&P/Case Shiller December report published today, (2 months after the close of the period, reflecting October-November-December closed sales, reflecting August-Spetember-October contracts) reflects a continuing malaise in US housing even though the 2011 housing market got a reprieve thanks to the robo-signing scandal at the end of 2010 and the anticipated settlement agreement between the major services and the 50 US state attorney generals.

Data through December 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended 2011 at new index lows. The national composite fell by 3.8% during the fourth quarter of 2011 and was down 4.0% versus the fourth quarter of 2010. Both the 10- and 20-City Composites fell by 1.1`% in December over November, and posted annual returns of -3.9% and -4.0% versus December 2010, respectively. These are worse than the -3.8% respective annual rates both reported for November. With these latest data, all three composites are at their lowest levels since the housing crisis began in mid-2006.

What’s interesting is how many don’t seem to understand what the index represents. Here’s a not uncommon interpretation via AP:

The declines partly reflect the typical slowdown that comes in the fall and winter.

No they don’t – the indices effectively washes out seasonality, both through the seasonal adjustments made to the index and the methodology itself. The non-seasonal adjusted results are virtually the same – and the methodology doesn’t reflect certain truisms like the surge that occurs in nearly every spring market since the dawn of time (or at least since cable tv was invented).

December 2011 S&P/Case-Shiller Home Price Indices [Standard and Poors ]
Survey: Prices declined in 18 of 20 cities in final months of 2011 [AP/WaPo]

[In The Media] CCTV Biz Asia America 2-25-2012

Posted by Jonathan J. Miller -Monday, February 27, 2012, 9:45 AM
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[Interview starts at about the 31:30 mark.]

Had a nice interview about new and existing US home sales with Michelle Makori in the NASDAQ Marketsites studio on the street level at Times Square. She’s the anchor of the Friday evening broadcast of Biz Asia America, a show on the English-language channel of China Central Television (CCTV), China’s largest national broadcasting network. It is a 24-hour international news channel, which can currently be viewed in more than 120 countries and regions. They are making a big push in the US expanding operations in DC and NYC.

Have you recently sat down in front of the TV and tried to find national and international news? Aside from the inconvenient timing of network news, its nearly impossible and frustrating. Remember CNN Headline News? Now its HLN/Nancy Grace. CNN International is basically the same content as the US version. Bloomberg TV is one of the only US (real) news channels out there today other than when Anderson Cooper is on the scene at a disaster.

Like Al-Jazeera English and France 24, CCTV is filling the English speaking news void created by traditional US cable news outlets like CNN, Fox, MSNBC and others who focus on celebrities, tabloid style news and gossip. Let’s raise the bar people.

We’re Better Off Without Seasonally Adjusted Housing Stats

Posted by Jonathan J. Miller -Monday, January 9, 2012, 9:58 AM
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[click to expand]

I’ve been outspoken about the misuse of seasonal adjustments in housing statistics. While they are not all bad and are favored by economists for their ability to smooth out a year’s worth of information so one can see where greater than normal changes stand out, there cause more harm than good when it comes to understanding housing.

The basic problem with seasonally adjusting the numbers are as follows:

• there is no standardized methodology or period for making the adjustments
• the adjustments are rarely disclosed
• they often adjust already adjusted numbers (i.e. annualizing NAR existing home sales)
• the reader often doesn’t understand what it is
• while it may be useful for analysis, the results often contradict current conditions

and most importantly…

• the adjustments become skewed shortly after a significant market change.

As discussed in this Fed research piece on “…seasonality gone awry”:

While seasonally adjusted data can be extremely helpful, they should be used with care. In particular, the statistical methods used for seasonal adjustment may generate misleading results when applied to data with structural breaks, where the underlying properties of the data change significantly during the period studied.

Case in point is the National Association of Realtor’s Pending Home Sales Index that has basically been a mess for the past 18 months after the expiration of the federal home buyer’s tax credit. The disparity between the indices. The NAR press releases sharply contradict the feeling on the street with agents, buyers and sellers, marginalizing the meaning of the report results.

• Cash Assets of Foreign Banks: An Example of Seasonal Adjustment Gone Awry [FRB NY]
  
• Pending Home Sales Index [NAR]