Deutsche Bank Hammers Another Nail Into The Case-Shiller Coffin

joe lavorgna

Photo: CNBC

Tuesday morning, we get the April Case-Shiller home price index.  Economists estimate that the 20-city index climbed 0.4 per cent month-over-month.  But prices are also expected be down by 2.3 per cent year-over-year.However, we’ve heard a number of experts question the quality of the index.

Kevin Caron, strategist for Stifel Nicolaus, told Business Insider that the lag in home price data may be much greater than advertised:

The data doesn’t hit the database until the public filing after closing. But the closing may be months after the agreement between buyer and seller (and the banks that provide financing). Ultimately, the lag can be a long time (maybe six months) between when a price is agreed upon, the mortgage is secured, the closing occurs, and the sale is recorded and available for public use.

Bill McBride of Calculated Risk estimates that the lag could be as high as seven months.

  According to a new note to clients, Deutsche Bank Chief U.S. Economist Joe LaVorgna fully expects tomorrow’s Case-Shiller number to give an inaccurate read on U.S. home prices.    “[W]e believe C-S is understating recent home price appreciation, as a broad array of other home price
metrics is showing a more significant improvement in pricing behaviour,” wrote LaVorgna.   He cites four competing home price measures that all show home prices increasing year-over-year, which conflicts with the decline in the Case-Shiller number.   For example, the CoreLogic home price series, arguably the broadest measure of home prices in the US, has increased four months in a row at a +11.8% annualized rate. This is the fastest rate since the four months ending November 2005 (+11.7%). Over the past year, the CoreLogic series is up +1.1% (See chart below). Importantly, the FHFA home price figures have shown similar price appreciation; the series is up three months in a row at a +11.3% annualized pace. Over the last 12 months, FHFA prices have increased +3.0%.   Additionally, the improvement in the year-over-year growth rates is corroborated by both the median existing and new home price data, where the gains are +7.9% and +5.6%, respectively. Hence, we have four different home price metrics that are showing much more substantial home prices improvement than C-S, leading us to downplay the significance of the latter.   LaVorgna also attributes this discrepancy to lagging data. “Over time, we expect C-S to catch up to these other home price series.”   All of this has us wondering if we should really be paying attention to the Case-Shiller at all.   SEE ALSO: The Worst Housing Markets In The World >

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