The other day in response to the release of the Case Shiller Index I posted a link on Barry Ritholtz’s blog to my article about why I think Case Shiller is a horseshit indicator.
One commenter responded that it didn’t matter if a housing indicator was 4 months late. Case Shiller is in fact 5 1/2 months late. He has a point if you are buying your “forever dream house.” Another asked, “How can RE be analyzed in real time?” to which Barry Ritholtz responded “It can’t.”
But sure it can! Any experienced appraiser working in the market does it every day. I did it for 23 years in the business and continue to do it as an outside analyst. Commercial real estate analysts are quite capable of recognizing current market conditions. In fact, it is absolutely required of them. It is written into Federal law (USPAP) that appraisers must consider and analyze current market conditions and the current market trend. You must consider the current contract on the subject property, and current contracts on comparable properties. You must consider current listings!
Not all do it honestly or diligently, but many do, and they are quite good at it. They analyze the market in real time every day. It’s clearly inaccurate to say that the real estate market can’t be analyzed in real time when that’s exactly what real estate appraisers and analysts do. If you can do that on a micro level, you can do it on a macro level.
In my experience, it’s actually quite easy to recognize when housing markets are turning in real time. I’ve done it successfully for many years. I bought my house in Florida at the bottom of a real estate recession in May 1991. I sold it as well as called the top in my reports in mid 2005. That was the volume peak. The price peak came a year later in many markets but hardly anyone could actually sell by then. At that time I also correctly guessed the approximate timing of the decline. I tracked the decline and recognized the price lows in the spring of 2012. The pattern of a bottom was pretty evident.
The point about being 4 months late might be ok if it was 4 months, but Case Shiller is 5 1/2 months late. That’s stretching it. If you’re a housing speculator, rehabber, or investor, that’s valuable time. By the same token, if you’re a real estate professional, you’re already in the market and you already know where it’s headed. You are analyzing on the fly all the time. I’d venture to guess that most real estate pros would find the idea that the market can’t be analyzed in real time laughable.
Realtors have real time market data. They don’t release it to the public. CoreLogic has access to real time contract data and they use that to publish a “pending sales price index with about a 3o day lag. Listing price trends are public and real time, and they are accurate reflectors of the market’s direction. You can find them published at DepartmentofNumbers.com. They are above the absolute price level, but the ask is as good a market indicator as the bid. Sellers in the aggregate are not all greedy idiots. Serious sellers get direct market feedback and price their properties to sell. Asking prices rise and fall with the bids. The subsequently reported sales prices have consistently confirmed the accuracy of listing price trends. The spread is even relatively consistent at around 10% give or take a point or two. If you know listing prices are rising or falling right now, are you willing to wait 5 1/2 months for confirmation?
If you’re buying a home that you expect to live in for the next 15 years because it’s the house of your dreams, then sure, timing is irrelevant. But if you’re in it to make money, then timing matters. It matters a lot. If you are trying to make a buy versus rent decision it matters. Being 5 1/2 months behind the curve could cost you. It’s wrong to think that the housing market can’t be analyzed in real time, and its wrong to think that being 5 or 6 months late doesn’t matter in these cases. it might not, but it might.
If you’re in the housing market, pay attention to real time data and do your homework. It can make a difference. So will knowing the direction of mortgage rates. It’s always a crapshoot, but you want to tilt the odds as much in your favor as possible. At the moment, with another Fed subsidized housing bubble picking up steam and mortgage rates rapidly rising, do you want to know where the market is now or 5 1/2 months ago? Whether to buy now or not is a tough call, but whether to use fresh or stale data in making the decision isn’t.
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Brilliant points, Lee. Good for you. And Congrats on having 1000 twits following you. You certainly deserve it, with all the hard work you do & insights you share.
If it always is a crap shoot, don’t buy.
Thanks!