Yesterday we noted one of the objections to the Case-Shiller numbers brought up by housing analyst Mark Hanson: What he argues is that higher end homes were mainly being sold by people who had bought in the late 90s (folks who were still overwater on their purchases) rather than latter-stage bubble buyers, who were too underwater to sell.
A few commenters thought this was a ridiculous argument, since we don’t make the same kind of argument with stocks — we don’t care when the buyer bought their shares. But this objection ignores how the Case-Shiller is constructed. It doesn’t just look at similar homes — it specifically monitors each individual house’s history, and how a sale compared to its last sale.
Thus, if there really are a lot of folks in the upper echelons who would like to sell, but simply can’t because of the horrible bath they would have to take, their lack of selling will skew the prices upward. And if the only sellers are the ones who are still above water, due to their having been in their homes longer, then that will mitigate actual market declines.
What we’d really like to here is Shiller himself — who is talking more and more about his index fleshing a bottom — address some of these specific criticisms.
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