Economists' Outlook

Housing stats and analysis from NAR's research experts.

A Little Learning Can be a Dangerous Thing

As a five year old my elderly great-aunts told me that “A little learning is a dangerous thing”:  being certain without all the facts can lead to the wrong conclusion.  This was aptly illustrated by the sound bites accompanying the latest Case-Shiller Index release.  The Index was reported as falling in January by 0.8% from its December reading and as down 3.8% from January 2011.  The headlines announced that the housing market was off to a “rocky start” for the year as prices reached new lows.  As a friend of mine used to say, “We gave them the facts—just not all the facts.”  Put differently, the coverage was wrong, although the facts were presented in the Case-Shiller news release.

  • Case-Shiller reported that prices were down, year-over-year by 3.8%.  However, Case-Shiller’s results are based on a 20 city sample of housing prices, not representative of the total housing market.  As of January 2012 NAR’s numbers show that prices nationally were down by 2.2%.  Using February’s more recent data, NAR’s numbers show housing prices actually up by .3% year-over-year--not much, but starting to look like a move towards stabilization.
  • Case-Shiller’s reported prices for January are actually based on a 3 month moving average centered on December closings, reflecting contract signings in the September/October/November timeframes.    Case-Shiller information significantly lags the market.  In contrast, NAR’s reported sales closings and prices are actuals for the months of January and February.
  • On a month-to-month basis Case-Shiller reported prices down by .8 percent.  However, it is well established that month-to-month economic data should be evaluated on a seasonally adjusted basis.  On a seasonally adjusted basis, Case-Shiller reported price stability--a 0 percent change in price (not something that immediately grabs your attention from the headlines).
  • On a city-by-city basis, Case Shiller reported declining prices in Denver (-.6%) and Seattle

(-.7%); however, seasonally adjusted prices were actually up (Denver +.7%, Seattle +.8%).  There were a total of 5 cases in the 20 city sample of negative/positive changes.

What does this mean for Realtors?

Your clients probably heard the sound bites on Case-Shiller—i.e., continued falling prices.  Quoting Dragnet’s Joe Friday—“Just the facts Ma’am, just the facts”--here are the facts:

  • In terms of sales closed, January and February were the best months in five years.
  • In terms of prices, preliminary February NAR data shows prices starting to stabilize; whether this continues will depend on the economic outlook (Will Europe default? Will the Federal budget be a buster, etc.), but most economists think we are near the housing market bottom with stabilization on the horizon.
  • Finally, month-to-month pricing is irrelevant—your clients will probably hold the house for 8 years or so “on average”, and prices and mortgage rates are reasonable right now.  Nobody has a crystal ball, but who thinks prices will be lower in 8 years?

Economists have various successes in forecasting, but this one seems to be a no-brainer:  the sound bites for Case-Shiller weren’t really on target.

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