Just a few quick bits today.
First, the New York Times informed us last week that "It’s not just subprime anymore." It’s nice that the mainstream media is coming around, but as I’ve been ranting about for the better part of this year, it was never just subprime.
Second, Señor SLOP pointed me to a U-T article about a recent study contending that the housing bust will "erase" $1.5 billion from San Diego’s economy next year, resulting in a local economic growth rate of 2.1 percent instead of the 3.0 percent it should have been. The article is an interesting read but I’m skeptical of the ability to forecast the housing downturn’s effect on economic growth with such precision. There are a lot of factors here — not just home equity extraction and housing employment, but second-order effects like a potentially more widespread credit tightening, the housing bust’s impact on stock prices and consumer confidence, the inflationary impact of the Fed’s attempts to ease the downturn, and who knows what else. It seems like a long shot to quantify the impact of all these moving parts to within a tenth of a percent, but maybe that’s just me.
Finally, just to make this an apparently continuing series on the Case-Shiller Home Price Indexes, I wanted to address some questions I’ve gotten about how the indexes are created.
There is one methodology
There is one methodology point I am concerned about. The choice of price cutoffs (two “tertiles”) is based on the first sale price, not the most recent. I would think this blurs the tranches considerably, because the first sale dates are spread across time – during which time aggregate values were changing!
For example, House A sells for $500K now, first sold for $500K a year ago. House B sells for $500K now, $100K ten years ago. Both were mid-market houses then and mid-market houses now. Is House A in the mid third ($500K) and House B in the bottom third ($100K)?
Surely the smart guys at S&P/C-S looked at which third the house was in at first sale, not its actual price, and the price points shown are for the recent sales price – even though that does not directly factor in to the grouping.
– Eric
In the methodology document
In the methodology document they say that they smooth the breakpoints over time. I’m not sure exactly what this means but I assume that it is to address the potential problem you raise… they have a pretty good methodology overall so I can’t imagine that they’d let something like that slide.
In other words, I entire agree with your last paragraph…
rich
I sent an email inquiry to
I sent an email inquiry to one of the fellows listed in the back of the methodology document.
The fact that the tertiles are quoted in dollars implies using the latest sale.
If houses are classified as low, mid, or high based upon first sale, then the dollar tertiles are approximate numbers – unless there is no drifting between thirds, which seems unlikely. Yet the numbers are precise: $679K, for example, implying they are not approximate.