Posted on 12/07/2006 8:52:46 AM PST by GodGunsGuts
The OFHEO has several deficiencies that skew housing market stats to the upside. They are as follows:
December 5, 2006
More on Housing Prices
By DAVID LEONHARDT
The broadest government measure of house prices is calculated by the Office of Federal Housing Enterprise Oversight, the agency that oversees Fannie Mae and Freddie Mac. The idea at the heart of the index is a good one. It tries to do the same sort of apples-to-apples analysis I described in this week's column, tracking individual houses over time to see how much their price has changed.
But it has three big weaknesses that end up making it much less useful than it could be. First, it excludes any mortgage over $417,000, because Fannie Mae and Freddie Mac — the two big mortgage buyers — don't own loans so large. Obviously, many mortgages on the coasts are bigger than that.
Second, the data for individual metropolitan areas includes not just house sales but also appraisals done for a mortgage refinancing. Appraisal values, as many people know, tend to be inflated.
Finally — and by necessity — the index includes only houses that have actually sold lately. In a falling market, with an enormous number of properties for sale, the houses that are selling tend to be more appealing than the average house.
"We're dependent on houses that are actually transacting," said Patrick Lawler, the chief economist at the oversight agency, which is known as Ofheo. "It's true that may not evenly reflect the market."
Right now, all these flaws seem to be making house values look much stronger than they really are. According to the latest index, for example, the average house in Miami would have sold for 22 percent more this summer than a year earlier. You won't find many house sellers in Miami who would agree that's true.
As Thomas Lawler, a housing economist (and no relation to Patrick Lawler), recently wrote in a report to clients, "Well, there's a growing view that this index...doesn't reflect what's really going on with home prices."....
http://www.nytimes.com/2006/12/05/business/06leonhardt-side.html?_r=4&adxnnl=1&oref=slogin&adxnnlx=1165806099-euJOV7toSE57h/SGKxu/yA&pagewanted=print
PS USA Today ran a number of editorials back in 2005 to the effect that there was NO HOUSING BUBBLE. Now they have no choice but to report on the housing bubble as the market itself forced them to cry uncle.
4% unemployment, people with more money than ever, more leverage, and more assets....
(I can hear your whiny refrain already)
"But, but, but,... they have debt... buy gold!!!"
You obviously haven't taken the time to read the replies in this thread. Your kind never does...
btt
(I posted without checking my spelling)
A tortured heart does not mean a beautiful mind. In fact, your twisted logic has your mind wrapped around tangles of loose cobwebs of misunderstanding and unsubstantiated half-truths.
But, I no longer care about your pathetic lack understanding of basic economic and financial principle. You focus on one facet, that is alone too difficult for you to grasp. Beyond your comprehension there are multiple facets just as easy to use as tools as the foot at which you worship.
Just because you disillusionment with numbers lead you to give up math in the 6th grade, doesn't mean you have a right to scare people with some nebulous mixture of fog you call wisdom.. Your jealousy causes you to throw out frightening information in a vain effort recapture what was lost in your heart during 6th grade fractions.
But I haven't any charity for this subculture of myopic jealousy for which you subscribe. I just care to make money and power off of people like you. I have no charity for scaremongers. All my charity goes to the library in the form of late fees.
In hindsight I should have bought. There is no doubt of that. I couldn't have if I had wanted to. I was a homeowner for decades and let's just say a divorce took it's toll. I tried to buy but was unable to. And back then, the house payment would have been actually only $100 more than the rent for the same house, except I was in a cheap apartment.
However, if I had had any idea the biggest pyramid scheme in the history of the US was just beginning, I'd have done whatever it took to buy SOMETHING. Who knew!
But right now - today - the pyramid scheme has run it's course. This is definitely NOT the time to buy. There are markets where it is more prudent to rent. This is one of them. It is a simple risk assessment formula. Next spring we will all have a better idea of where this thing will be going in the long run.
So now we're together on the idea that USA Today was not reliable back in 2005. FWIW, I didn't accept USA Today as a reliable source back then either, but like the stopped clock that's right twice every day, USA Today might even be right now. Then again, we sure don't want to plan our lives around either of them. A stopped clock just doesn't measure time and USA Today does not measure home prices.
Finding somebody at the NYTimes to point out OFHEO limitations is not useful either. The OFHEO and FreddieMac are already upfront on their limitations (re the disclaimer in bold type post 160) when they publish their numbers. If I wanted to find fault with the OFHEO, I could do a lot better than the NYTimes. The point is that I don't care what's wrong, I have to know what's right.
So far we've got OFHEO and FreddieMac numbers with a rundown on how they added them up. You started out pretty good in post 81 with a plot by Haver Analytics; please see if you can finish what you started and show us their numbers and methodology. Let's skip the Democrat thinking on who's numbers are wrong --we can get richer by doing our own thinking. ;-)
I'm not sure how that can be construed as a flaw. Any competent analysis of home values will do the same, and doing so does not necessarily skew the data upwards.
If it were then the writer could've recalculated and come up with a different set. Seems that the reason he didn't was because either he couldn't (finding other data wasn't practical) or he actually tried it and it came out the same.
It's no surprise that the NYTimes prints garbage. What surprises me is that so many people --even on these threads --take them seriously.
What the heck are you guys talking about? It doesn't matter which paper reports it, the OFHEO numbers are skewed in such a way as to make the housing market look like it's in better shape than it actually is. Do you guys honestly think that housing numbers that ignore mortgages that cost more than $417,000 and mix in appraisal values with actual selling prices are somehow valid???
BTW, the housing bubble will affect the economy in a big way...here's just one of them:
Housing Bubble Bursts in U.S. Mortgage Bond Market
http://www.bloomberg.com/apps/news?pid=10000103&sid=aDSB370ItSJU&refer=us
Just keep spending your money on whatever you spend it on. I'll be happy with that.
Some of the "workmanship" I've seen the past few years is pathetic and borders on criminally negligent.
I am with you. I am a masonry contractor. Some of the work we have had to "cover" has been pathetic and unnecessarly time consuming. With winter coming on, the people who have work are the competent people, and the fly by nights are roaming.
A slow down should eliminate the shoddy contractors. We might even be able to pick up a good employee along the way, but I am not going to hold my breath.
I was pointing out that using the actual transaction prices of recent home sales is not a flaw as you suggested, nor does it necessarily skew the data upward. In fact I'd argue that by focusing on foreclosures, what you're attempting to do is skew the data downward.
Do you guys honestly think that housing numbers that ignore mortgages that cost more than $417,000 and mix in appraisal values with actual selling prices are somehow valid???
As long as it's known that the mortgage data is capped at 417K, then yes I'd say it's a valid analysis. There's no evidence that the statistics outside that range behave any differently. In fact I'd make a small wager that the mortgages above 417K behave better.
As far as mixing refis in with purchases, you may have a small point. However, it should be fairly easy to model the two sets of data separately to see if there is a deviation or not. Again, I'd make a small wager that there is enough correlation to validate mixing the two sets together.
Finally, while maintaining a degree of neutrality in this discussion I don't find your arguments especially persuasive. That you have an ax to grind here is apparent.
I am very open about the fact that I firmly believe a) the housing bubble exists and 2) is in the process of deflating and 3) that said deflation will be massive by the time this is all over and 4) will be a significant blow to the larger economy (which is already entering a recession).
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