S&P: We Know The Case-Shiller Home Price Index Has Problems But There's Nothing We Can Do About It

david blitzer s&pDavid Blitzer

Photo: CNBC

The S&P Case-Shiller home price index is inaccurate….so is every other economic indicator.

But Case-Shiller faces uniquely complex issues.

Specifically, the prices levels indicated in a given month’s index are based on closing prices, which reflect contract prices that may be many months old.

In January, Business Insider investigated and spoke to S&P’s David Blitzer and index co-founder Robert Shiller.

Blitzer told us, “these are the only consistent, reliable and accurate source of price data.”

On Tuesday, Calculated Risk again raised the issue of lagged numbers in the Case-Shiller index ahead of the release of the January numbers.

To this, Blitzer responded on S&P’s website:

The infrastructure for buying a house — real estate brokers, mortgages, title insurance, lawyers, recording deeds etc. — is largely a paper-based system involving numerous parts and many different people and steps.  Sometimes buying a house seems to mean stepping back into the early 20th century if not the 19th century.   As a result, you can’t get data quickly and if you want an accurate picture of what is happening, it takes time.  So, unlike stock prices which are available in real time, house prices come with a lag.   Further, house prices tend to bounce around a lot, so the indices are reported as three month moving averages to give a better indication of trends.

Calculated Risk noted that competing home price indices often weight their numbers.  Here’s Blitzer’s response to that::

One comment suggested that a weighted average should be used with more weight on the most recent month.  This is also a trade-off: putting more weight on one of the three months means more volatility.   For the S&P/Case-Shiller indices, the trade-off between speed and accuracy means waiting a little while in exchange for better accuracy.

Like we said in January and earlier this week, we think Case-Shiller is nevertheless the gold standard in home price indicators.  But we continue to reiterate that it is important for the data followers to understand what the numbers are really saying.

SEE ALSO: 20 Cities Where Foreclosures Are A Huge Problem >

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