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Confused about case-shiller report

 
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PostPosted: Thu Aug 30, 2007 6:56 pm GMT    Post subject: Confused about case-shiller report Reply with quote

I just read the latest report on the case-shiller index for July, and I'm confused! It says

"In June 2007, Boston showed an improvement in its annual rate of decline from the value reported in May, –3.9% versus –4.3% reported in May. Boston has shown improvement since the beginning of the year, where its annual growth rate measured –5.5%. More data however, is needed to determine whether Boston, whose growth rate turned negative before other metro areas, is truly the first metro area to turn around."

Are they saying that the decline May-May was 4.3, and June to June was 3.9 so things are getting better? How does that make any sense? If prices in May 2006 were 400K, and June 2006 390K then May 2007 would be 383, and June 2007 would be 375. That is still down, and down substantially, right? Why would this be the sign of a turn around? That the percentage drop is moderating would be expected as we move into the months in which there was also a drop last year, right?

Enlighten me someone!
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PostPosted: Thu Aug 30, 2007 7:50 pm GMT    Post subject: Reply with quote

I don't think you are missing anything, they are just trying to appear optimistic. It does look like grasping at straws. Just eyeballing the year over year changes for Boston for the last 12 months, the June decline looks very close to average, and I would be very surprised if it deviated significantly from average (i.e., more than one standard deviation):

http://www.papereconomy.com/CSI.aspx?id=BOXR&start=2006&stop=2007&yoy=1

Comparing the national S&P/CSI with the previous downturn suggests that this is nowhere close to being over:

http://paper-money.blogspot.com/2007/08/s-june-2007.html

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JCK



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PostPosted: Fri Aug 31, 2007 2:29 pm GMT    Post subject: Reply with quote

I agree they're being optimistic by saying things are getting better, but these comparisons to the previous downturn are pretty silly IMO.

It makes for some nice graphs, but I've haven't seen anyone outline reasons why the comparison should be predictive.
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PostPosted: Fri Aug 31, 2007 2:57 pm GMT    Post subject: Reply with quote

JCK wrote:
I agree they're being optimistic by saying things are getting better, but these comparisons to the previous downturn are pretty silly IMO.

It makes for some nice graphs, but I've haven't seen anyone outline reasons why the comparison should be predictive.


By the same token, I haven't heard any compelling reasons why this correction will be shorter in duration than past corrections. It would obviously be helpful to compare it to several past corrections instead of just the most recent one, but I think the S&P/CSI doesn't go back that far (I could be wrong, though). However, there is a graph in Irrational Exuberance which I believe uses the same methodology and which goes back much further:

http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png

Just eyeballing it, the last correction doesn't look exceedingly long in comparison to the others.

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PostPosted: Wed Sep 05, 2007 12:49 am GMT    Post subject: You are missing something Reply with quote

The data does actually show month to month improvement since January. Basically, the index is where it was in Novemeber. I'm not sure how the methodology of Case Schiller deals with seasonal variations but I think it is supposed to be much less influenced by that than data such as that coming from NAR.

I downloaded the data and basically it shows that the peak occured in September 2005. There was a steady decline for about a year and then a rather steep drop off late last year. Since then, things have slowly moved up.

I'm not sure how statistically significant these increases are relative to whether the market is actually moving up or just staying the same, but it is significant relative to the rest of the country where declines are clearly occuring and actually accelerating.

A honest appraisal of the data would lead one to conclude that Boston declined earlier but has been doing better lately. This, of course, doesn't predict the future, but it is encouraging news.
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PostPosted: Wed Sep 05, 2007 2:36 am GMT    Post subject: Re: You are missing something Reply with quote

Anonymous wrote:
The data does actually show month to month improvement since January. Basically, the index is where it was in Novemeber. I'm not sure how the methodology of Case Schiller deals with seasonal variations but I think it is supposed to be much less influenced by that than data such as that coming from NAR.

I don't believe that the S&P/Case-Shiller Index deals with seasonal variations at all. Perhaps you are thinking of how it is a 3 month moving composite, which smooths out monthly volatility, but not seasonal variation. A graph of the historical values shows that the Boston values are very wavy compared to the national numbers, with the waves corresponding to the seasons, and so I think that that the month to month increases that you described could be attributed to that.

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PostPosted: Wed Sep 05, 2007 3:12 am GMT    Post subject: Reply with quote

You're probably right but I still think the data is more encouraging for Boston. On an annualized basis, the first 6 months of the year show something like 3.6% appreciation. Not great, but better than what is going on in other parts of the country or what was going on last year....

A couple other points...

The Case Schiller Index uses a repeat sales technique. I thought that this should indirectly reduce seasonal variations given how the data is being averaged over a longer period of times (i.e. those between given transaction). This is fairly complicated and I may be wrong but this method would seem less sucecepitble to seasonal variations than others...

Also, it may be noteworthy for those interested in data that the CSI excludes condominiums. Given much of the discussion and data suggesting more stength in that market than the SFH market, one might want to consider that...
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