Can you smell a conflict of Interest? The S&P Case Shiller Home Price Index is the benchmark the financial press uses in telling the people how much doom & gloom there is with the housing market. In 2007, nationwide home prices went down for the first time in decades (Miami was one of the first in 2005), with OFHEO (Office of the Federal Housing Enterprise Oversight) telling us 0.3 percent, NAR telling us 1.4 percent, Realogy 1 percent and Case Shiller… 8.9%! The Case Shiller index’s findings are notoriously softer than the indexes used by other major indexes. WHY? Yale Economist Robert Shiller, cofounder of the index is great at scaring home buyers with predictions and proclamations that home prices will fall further than the 30 percent drop in the historical depression of the 1930’s as he told the Associated Press in April. Well the media as well as securities investors and analysts LOVE the Case Shiller Index and call his gauge “the best for real estate values”. One reason of it’s fame is it’s Wall Street seal of approval. It was launched to provide information to hedge funds. Since reporters work on “fluff” they typically lean towards the Shiller Index to back their reports.
Created by Shiller and Karl Case, the index is licensed exclusively to Macromarkets LLC for “developing, structuring and trading financial instruments.” see Macromarkets LLC. Shiller is a founder and chief economist of Macromarkets. Among Macromarkets’ products is the Housing Futures and Options index, which forms the basis for “directly investing in and hedging US housing” on the Chicago Mercantile Exchange, where futures and options on the index are traded.
“Every time a CME hedge is made, revenue flows to Macromarkets,” says NAR’s chief economist Lawrence Yun. “People would hedge only if they believe price movements will be volatile”
So is the Case Shiller Index biased towards the negative? Case Shiller might be praised by the financial press, while NAR is known for relaying a positive outlook, but all in all, OFHEO and NAR don’t have relationships with hedge funds on the side. Oh btw, if you haven’t subscribed to this blog yet, do it now! If you’d like new blog updates once available, you can be notified by email or by RSS feed (see upper left column) every time a new posting occurs. 1.888.38.DREAM