Monday, March 19, 2007

Charting the Bubble (Slight Return)

Last year, I released the Office of Federal Housing Enterprise Oversight (OFEHO) Home Price Index Charting Tool that allowed users to mix and compare home price data from any number of over 400 statistical regions on the same chart.

Today, I’ve released the S&P/Case-Shiller Charting Tool which complements the OFHEO tool, allowing you to compare home price data from any number of the 22 different metropolitan and composite statistical series currently supported by Standard & Poor’s.

The S&P/Case-Shiller Home Price Indices, which is published monthly under agreements between Standard & Poor’s, Fiserv, and MacroMarkets LLC, provide a “reliable and consistent of housing prices in the United States.”

The “repeat sales” methodology used to calculate the indices was developed in the 1980’s by Professors Karl E. Case and Robert J. Shiller and is highly regarded by financial institutions.

In fact, it provides the basis of the Chicago Mercantile Exchange (CME) housing marketplace that has emerged over the last year.

The following excerpt taken from a CME Housing Market FAQ explains why the S&P/Case-Shiller is more accurate than both the National Association of Realtors (NAR) index as well as the OFHEO index:

There are two other major housing indexes: the National Association of Realtors (NAR) Indexes and the Office of Federal Housing Oversight (OFHEO) Indexes.

The NAR Indexes quote median values without recourse to a repeat sales methodology, which creates a significant potential for bias.

The OFHEO indexes do utilize a repeat sales methodology but are confined to Fannie Mae and Freddie Mac conforming mortgages, which are skewed to the lower end of the housing market.

This is a significant issue because only approximately one-sixth of housing in California is sold with a conforming mortgage. OFHEO indexes also utilize appraisal data to supplement their samples, which creates the possibility of bias that reflects the interests of those who are paying for the appraisal.

However, as all three indexes generally track the same phenomenon they are likely to move more or less in parallel.

So, what is the S&P/Case-Shiller Home Price Indices currently telling us?

Most of the country’s major metropolitan areas are registering significant declines after having experienced an unprecedented run-up in the last 10 years.

As Professor Shiller put it recently on CNBC:

“We are just emerging from the biggest housing boom in the history of this nation. It’s been driven by unrealistic expectations.”

Take a look at virtually any of the statistical areas and you will see roughly the same patter of huge surge, especially after 2000, followed by an abrupt rounded turn around in 2006.

The following are charts for some of the bubbliest markets:


Both the OFHEO HPI Tool and the S&P/Case Shiller Tool now support two ways of dynamically linking so that you can integrate the charts into your blog or website.

You can link directly to the tool by simply building out the chart with the data your interested in, and then copying the URL link from the address bar of your browser and including it in your site.

Alternatively, if you would like to actually “embed” a dynamic chart (as I have done above… the chart view will actually automatically update when I update the data every month) into you blog or website do the following:

  • Build out a view of the chart with the data your interested in.
  • In the address bar of your browser, add the following to the URL: &width=300&height=300&ext=.jpg
  • In your web page, add an image tag with this URL set as the src.
Now, when your page is fetched, this “dynamic” image is fetched as well and the chart will always remain “up-to-date”.

Also, you can choose your preferred image size by adjusting the height and width and image format by specifying either .jpg, .gif or .png.

As usual, let me know if you have any issues or comments on both tools.