Getting an Accurate Real Estate Analysis | S&P Case-Shiller Predictions of Home Prices.
Can you smell a conflict of Interest?
S&P Case Shiller Home Price Index
The S&P Case Shiller Home Price Index is the benchmark the financial press uses in telling people how much doom & gloom there is with the housing market. In 2007, nationwide home prices dropped 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, the co-founder 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 historic depression of the 1930s, as he told the Associated Press in April.
Well, the media, securities investors, and analysts LOVE the Case Shiller Index. His gauge is called “the best for real estate values.” One reason for its fame is its Wall Street seal of approval. It was launched to provide information to hedge funds. Since reporters work on “fluff,” typically lean towards the Shiller Index to back their reports.
Real Estate Analysis via Macromarkets
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 the 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.
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