Tuesday, December 30, 2008

About today's awful Case-Shiller number

A month ago, David Stiff of Fiserve informed me, "in general, sales of bank-owned (REO) properties are included in the repeat sales pairs used to estimate the indexes if they occur at least 6 months after a previous arms-length transaction."

There are currently markets in which foreclosure sales make up 40 to 50 percent of all sales. These transactions are almost surely not representative of the housing stock, and so the CSI is currently a biased estimate of house price changes. I admire both Case and Shiller a lot, but they really need to fix this.


Somebody said...

Shouldn't the C/S index also exlude prior sales in which the purchase was made with bubble (subprime|nodoc|liarloan) debt?

I guess my question is rhetorical. IMHO, once your start excluding a particular type of sale, you are heading down a slippery slope.

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Sam K said...

Richard, while I agree it's biased (though not necessarily for the same reasons), if 40% or 50% of sales are REOs at what point do those distressed sales become the market (ie perhaps they should be included)?

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