The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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From: bentway	7/29/2008 2:04:46 PM
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Case-Shiller vs OFHEO By Tony Crescenzi RealMoney.com Contributor 7/29/2008 1:15 PM EDT The Case-Shiller index on home prices was down 15.78% on a year-over-year basis in May, slightly better than forecasts for a drop of 16.0%. The drop stands in stark contrast to the 4.8% decline reported by the Office of Federal Housing and Oversight. The differences reflect a number of factors. For starters, OFHEO's index is broader, covering far more than the 20 metropolitan markets covered in the Case-Shiller index. Moreover, the 20 markets covered by Case-Shiller are those that have seen significant price volatility in recent years. A second factor is the fact that OFEHO's index contains only those homes that are financed by agency mortgages, which tend to be far better underwritten than the universe of mortgages. In other words, OFHEO's index will not capture either the subprime or jumbo markets well. The net of all of these factors means that home prices are probably falling by less than the Case-Shiller index suggests because it the index is too narrow, but given that OFHEO does not include subprime and jumbo mortgages prices are probably falling more than OFHEO is suggesting. The answer is thus in-between, although the broadness of OFHEO's index puts a modest lean (from the mid-point of the two) toward OFHEO, at least in terms of the national average. Market sentiment nonetheless is likely to be impacted more by the Case-Shiller index in the time ahead. Prices are likely to begin to fall at a slower pace next year in response to the recent increase in housing affordability, a rise in consumer confidence associated with the inauguration of a new president, and a dearth of home construction relative to household formation

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