House Prices As An Example Of Fed Risk Mispricing (Shiller’s The Housing Boom Is Already Gigantic. How Long Can It Last?)

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

Yale economist and Nobel Laureate Robert Shiller wrote an interesting op-ed in the New York Times entitled “The Housing Boom Is Already Gigantic. How Long Can It Last?”

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Bill McBride at Calculated Risk already opined on some of the odder aspects of Shiller’s op-ed. So, I am going to focus on a different angle about the gigantic boom in housing prices and how can it can last.

Let’s look at the spread between YoY home prices using the Case-Shiller 20 metro home price index over the Case-Shiller National home price index (includes smaller metro areas). You can see that the CS 20 index spread over the CS National index ballooned during The Fed’ third round of quantitative easing (asset purchases). It slowed dramatically once The Fed stopped QE and is now falling that The Fed is unwinding its balance sheet.


Another spread is between the CS 20 metro YoY and FHFA’s Purchase-only Index YoY. This chart shows that the spread actually became negative after The Fed stopped QE.


The CS 20 Metro index heavily weighs coastal cities like Los Angeles, San Francisco, Seatlle, Boston, etc. The CS National and FHFA PO indices include interior US metro areas like Kansas City. Or more rural areas like Show Low, Morenci, and Three Way Arizona.

Did The Fed help misprice risk assets like housing? Of course!


Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

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