Thursday, December 4, 2014

Prices fall in expensive cities-rise elsewhere

Prices fall in expensive cities-rise elsewhere
Case-Shiller’s 20 city index grew 4.8% over the last year, but that consists of the first two quarters of growth and the last 2 quarters of decline. Prices fell off the cliff in the spring market. The seasonally adjusted index reached 173.4 in March and fell to 170.0 in September, The city results differ widely. However outside the 20 cities growth is rapid and sustainable.

The following graph illustrates the rise in prices in beginning the first quarter of 2012 and ending in the first quarter 2014. Income and job growth are better but prices are falling. Cities where houses are difficult to permit are volatile with expectations of price increases.  In 2011 the scheduled reduction in government loan levels was repealed causing a booklet in prices.  This triggered investors and other buyers to jump in and prices soared.

In mid-2013 the administration had to go to Congress to bailout the FHA trust fund so the mortgage fees jumped reducing the buyers. In unstable markets a marginal change in demand produces a sharp change in price because it changes the perception of buyers.  

The price increase varies sharply by city depending upon the difficulty of building new homes to meet demand and changes in local income. The following chart illustrates the decline in each class of city. The cities are grouped by the growth in price during the expansion from 1997 to 2006. Growth in the volatile California cities fell from 25% in second quarter 2013 to -1% in third quarter 2014 – decline of 27 percentage points. In the stable cities growth fell from 8% to 5%- a drop of 2 percentage point. The performance of each city in shown is the chart and table below. 


High house prices are good if you own a house but a high priced market will see an erosion of employment as companies locate elsewhere.  So competitiveness generally brings prices down to where they were at the beginning of the bubble adjusted for inflation.  This is a long slow adjustment.  The reason for high growth in smaller cities is that they were below the real price at the start of the bubble.  While the Case Shiller 20 cities are experiencing price declines the prices grew 25% above the level at the start of 2012.

The individual cites are affected by economics and the individual quirks that influence real estate. 
The Case Shiller cities usually grow faster than the national average but not in the last two quarters. The National index implies a double digit growth outside the Case Shiller cities.  If you rely on the Case Shiller national index you will see a different conclusion.  That index is misleading because it is based on a sample of urban areas that does not match the national housing market.

 The government decision to relax credit standards in the current low interest rate environment will increase prices most in the most expensive markets.  However that means they have further to fall in the long term.







Tuesday, October 28, 2014

Fourth consecutive monthly decline in Case Shiller


David Blitzer, Chairman of S&P index committee, stated that “The deceleration in home prices continues.” True. But would it have been more useful to point out that if the decline of the last 4 months continues, the year over year index will be 4.0% next month and negative with the reporting of December activity.  The year over year price growth of 5.6% for the Case Shiller 20 city consists of 8 positive months which grew at 6.9% and the last 4 negative months which is why the index will turn negative so quickly. 
   .
These trends are illustrated in the following graph:
Source: Case Shiller

After the end of the house purchase credit in June of 2010 prices were negative. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases lead investors and buyers to pile in, creating the peak in March and April of 2013. Prices declined with the last strong month in March of 2014.
 
The two year “housing recovery" was a reaction to government action to stimulate the housing market and intensive lobbying to keep these subsidies.  Income and job creation were weaker in 2012 than when prices took off. The stimulation actions were successful in the short run but they are not permanent. They are most effective in high priced markets which have far to fall.

The following Table illustrates the decline by city.  To aid understanding these cities are combined into groups of cites that are similar but definitely not the same. The cities are with two exceptions grouped by the increase in price from the start of the bubble in June 1997 to the peak in June 2006.




Price Declines are much greater than would be seen in the year over year comparison because this analysis masks what is happening in the market. Prices in California are down With a 27 Percentage point drop in San Francisco.  Los Angeles prices were lower than typical for California because higher house prices had already made this city less competitive so price growth dropped only 9 points.  The resort markets, which were growing rapidly dropped to zero. Washington, New York and Boston price increases fell at double digit rates.  The most rapid decline was in mid-priced mid- western cities.  The stable cities declined but at half the 20 city 14 point decline.

Monday, October 27, 2014

Turlia’s Misunderstanding of Housing Seasonality



 Turlia Chief Economist Jed Kolko states in his article, “Lets Improve not ignore Seasonal Adjustment of Housing data,”  that the current seasonal adjustment of housing prices is inaccurate because the seasonal adjustment takes years to reflect the foreclosure sales which are lower priced and spread more evenly throughout the year.  He goes on to say “Unfortunately, many have concluded that the solution to the problem is to downplay or ignore seasonally adjusted housing data.” He has solved the problem with his Weighted Average Adjustment Factor (WSAF) which uses the 2004 Seasonal adjustment and adds the most extreme seasonal factor for each month and averages the result. You might expect that a prominent housing economist knows what he is taking about, but each statement about seasonality is wrong.

So is the seasonal adjustment inaccurate?  The following chart illustrates that the seasonal adjustment increases the winter lows and the summer highs since the beginning of 2011. The trends are clear; the problem of inaccurate seasonal adjustments he proposes to fix does not exist.

The  X11 Seasonal program used by the census bureau, Standard and Poor,  and just about everyone except Kolko, removes the impact of higher foreclosure sales, lower first time buyer participation, lower expectations for prices gains, etc.  In short all sorts of changes in the market. Yes there is a lag, but it is a two or at most a three year lag.  Kolko’s belief that 8 years after the bubble burst, the seasonality has not adapted to the changed market is absurd.

Kolko points out that Standard & Poor’s, the publisher of Case Shiller states that “The unadjusted index is a more reliable indicator.” He naively assumes that they are they saying that because they believe it. They want to focus on the year over year data and avoid embarrassing questions about monthly changes. They formerly preferred to use seasonal data until they faced too many questions about changes in monthly results that they switched to year over year comparison.

I forecasted revenue in a business where the seasonal swings were three times greater than house prices. I did adjust the seasonal factors but only for differences in workdays which X11 does take into account. For example, if Christmas was mid-week then more time would be taken off and December would be weak. Many frustrated analysts blame seasonality or their blown predictions. It is a comforting delusion, a brilliant analyst who is a victim of bad seasonal factors. 

 Last month I stated that July data declined by half a percent which was a 6% annual decline in my blog: housingcycles@blogspot.com. No, I was told, Kolko’s seasonal adjustment was half a percent higher so prices were flat. But Kolko’s prior month seasonal was also higher so the annual decline was slightly higher with his numbers. While Kolko makes error after error in developing his seasonal factors and they are more erratic and less reliable they are not all that different than the current ones he wants to save the world from.  His seasonal adjusted numbers show a decline in the last two months.  I will stick with X11 which shows a decline in the last three months. 



Tuesday, September 30, 2014

Case Shiller declines for third month at annual rate of 6%.


In the September report, S&P refers to a “Broad-Based Easing of House Price Gains in July”. They do not discuss the drastic decline that occurred since April.  The last high month was in March where most sales prices were negotiated in January.  The last four months are a sharp disconnect with previous months. While the Case Shiller  cities are declining, the rest of the nation is growing. In the second quarter the FHFA expanded index grew at an annual rate of 5.5% vs. -2.0% for the case Shiller 20 Cities. The Case Shiller has grown faster than the national rate since prices turned positive in 2012.  The areas outside the Case Shiller did not grow as fast in the boom and are lower priced. While Case Shiller has a national index,  it covers only urban areas so it is not representative of national performance.

The following chart illustrates the monthly seasonally adjusted Case Shiller performance at an annual rate.




S&P uses year over year comparisons to make the index appear smoother and more reliable than it is. This masks what is happening in the market.  The growth beginning in 2012 is one of the mini cycles since the peak in June 2006.  After this peak, house prices fell for three years, before picking up in 2009 with the house purchase tax credit. When the tax credit ended the prices fell in 2010. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases led investors and buyers to pile in, creating a peak in February 2013.  The investors started to leave at that point and rate of price increase declined.  

The cities in the table below are in order of the growth in the 9 year expansion from June 1997 to June 2006. They are grouped by cities that move in a similar pattern.  The chart compares the 3 months average ending in January with the average ending in July.  All of the cities experienced declining growth.

2014 Case Shiller 
Three Month Moving Average
Annual Rate 
Percentage
Jan-14
Jul-14
Point Change
Los Angeles
8%
0%
-8%
San Diego
13%
-2%
-15%
San Francisco
22%
-7%
-29%
TL California
12%
-2%
-14%
Miami
16%
0%
-16%
Tampa
13%
2%
-12%
Las Vegas
14%
7%
-7%
TL Resorts
15%
1%
-14%
Washington
10%
-7%
-18%
New York
8%
-2%
-10%
Boston
8%
-9%
-17%
Seattle
8%
-1%
-9%
TL Large Cities
8%
-4%
-12%
Phoenix
6%
-1%
-7%
Minneapolis
10%
-15%
-24%
Chicago
8%
-13%
-22%
Portland
12%
-2%
-14%
Atlanta
12%
-11%
-23%
Detroit
12%
-10%
-22%
TL Medium Priced Cities
9%
-10%
-19%
Denver
10%
1%
-9%
Cleveland
5%
-7%
-12%
Charlotte
5%
0%
-4%
Dallas
11%
2%
-9%
TL Stable
9%
0%
-9%
Composite-20
10%
-4%
-15%


This is a short term impact of the decline. Longer term the cities should perform differently based on the price level compared to the beginning of the housing cycle.   Cities like Los Angeles should decline more because the prices are much above those at the start of the cycle while lower priced cities like Atlanta should perform better. 

Wednesday, August 27, 2014

Case Shiller Prices Decline this Quarter


 Standard and Poor’s press release Tuesday headlined “Widespread Slowdown in Home Price Gains”.  Standard and Poor’s prefers to measure growth from year to year, which for the 20 city index is 8.1%.  That includes a great first quarter, two good quarters and the last quarter which is -1.6%. Yearly numbers avoid the monthly swings but knowing that house prices are falling is worth dealing with data issues.   The decline in the Case Shiller should increase in the following quarters. The seasonally adjusted monthly growth annualized is shown in the chart below.


This period of growth is one of the mini cycles since the peak in June 2006.  House prices fell for three years, before picking up in 2009 with the house purchase tax credit. When the tax credit ended the prices fell in 2010. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases led investors and buyers to pile in, creating a peak in February 2013.  The investors started to leave at that point and rate of price increase declined. The growth of prices during this 2 year period is shown in the table below. The cities are in order of the growth in the 9 year expansion from June 1997 to June 2006. They are grouped by cities that move in a similar pattern.

The three California cities grew by 39% with the tech fuelled economy driving San Francisco growth to 49%.  The resort cities collapsed rapidly but have recovered to grow at 32%. The 20 cities grew 25%.  However, excluding the California and resort cities the growth would be 18%.
Most of the cities that have the highest growth in this period will decline. Prices are driven by building limits and local economics.  I can demonstrate these relationships statistically and forecast price level for each region. Having worked in building products I have seen the long slow expansions and long painful contractions. House prices for the Case Shiller will continue to decline for the next few years. Some cites will see price growth but others will face years of decline.  Government programs helped improve results in the short term but stretched out the contraction in the long term.  We are now entering that long term.

The Case Shiller Index represents 29% of the national supply of single family housing. It contains the most volatile and most expensive cities which have driven national trends. This decline in the Case Shiller does not mean that nationwide house prices decline.  Most of the regions with the 71% of single family housing units should experience price growth at a sustainable level.  So it will be a two track market.

Tuesday, July 29, 2014

Case Shiller Turns negative



The latest Case Shiller report is negative 3.5%.  The S&P   Press Release headline is “Home Price Gains Continue to Moderate”.  What is moderate about dropping from 16.0% in March to -3.5% in two months?  Case Shiller announced a year over year change of 9.3% . Focusing on year over year number misses what is happening now. The following chart illustrates the Case Shiller monthly price change (seasonally adjusted at an annual rate) compared to the three month moving average.

 The moving average confirms the peak in March and April prices followed by a sharp as investors left the market and buyers became more cautious. Prices moved in a band between 10 and 12 % growth until peaking at 16% before falling precipitously.

After the end of the house purchase credit in June of 2010 prices were negative. The market reacted to restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases lead investors and buyers to pile in, creating the peak in March and April of 2013.

The following Table illustrates the two month decline by city.  To aid understanding these cities are combined into groups of cites that are similar but definitely not the same. The cities are with two exceptions grouped by the increase in price from the start of the bubble in June 1997 to the peak in June 2006. 



 
Only 2 smaller Markets were positive Tampa and Charlotte.  The index dropped 20 percentage points in the last two months. March closings were largely negotiated in January while May closings were negotiated in March. The 2014 spring market is weaker. It is possible that the activity in 2012 and 2013 moved aggressive purchasers forward and that the current buyers are much more cautious on price.  The last two months prices are likely to be a better indicator of prices than the current three month moving average.


Wednesday, June 25, 2014

Case Shiller Index drops 85% this month


The media headlined the 11% increase in the index and realtors will happily use it to reassure buyers. But the real annual increase this month is 2.4% down from 15.4% last month. This index is volatile and noisy but a single month drop of this magnitude is unprecedented.  Either the index is right and something has happened in the housing market the users of the index need to understand or the index is weak. David Blitzer of S&P which publishes the Case Shiller decided that this month was the time to discuss the big picture of housing performance over the last several decades. This reflects a stunning lack of confidence in his index, a limited understanding of where housing is going and prudence.  However the index is not wrong, the market is changing.  

The monthly change shown in the graph below, illustrates the real volatility in the market.   This variation is a reaction to changes in the market. House prices fell in 2011. The market reacted to in restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases lead investors and buyers to pile in, creating a peak in February 2013.  The investors started to leave at that point and rate of price increase declined. 
 The 12 month trend line is more realistic than the year over year but it is not reasonable given the variation of the data. The trend projection for next month is 7.5 which would require a sharp increase.
In June the most recent data is the April reporting.  The April closings consists of deals most of which were negotiated in February.  Deals in the previous month, March reporting for January  were at an annual rate of  15.4 up from the 9.8% negotiated in December. Short sales became more costly to the seller in January because the seller had to pay income taxes on the forgiven mortgage debt.  So there was a rush to close short sales before year end followed by homes taken of the market in January and February. However this is only a partial explanation for the erratic price data.

Further explanation can be developed by looking at the price changes of the individual cities in the following table, which compares the monthly increases, at seasonal adjusted annualized rates, for the March and April reporting.

These cities are grouped together with other cities that move in similar patterns, for ease of understanding.  For example Los Angeles grew at an Annualized rate of 14% in March but only 1.2% in April. The three California cities grew at only 0.5% in April 16 percentage points below March. The decline in the California made up 38% of the 20 city index drop in April.  After growing rapidly in March, Washington and New York decline in April caused 27% of the decline in April index.  Thus these five cities account for 65% of the change in the index.
The history of expansions in the U. S. is that at the end of the contraction the price is back to where it started in real terms unless the city is in economic decline or rise.  Mortgage rates, tighter credit demographics, student debt etc. all affect prices. But the three California cities are 90% above the start of the expansion.   Washington and New York average 50%and Dallas is 5% below. The high priced area will turn negative while other cities will do well. The Case Shiller index will turn negative, probably this year.




Saturday, June 21, 2014

The Pure statistical projection of Case Shiller




Suppose you are not satisfied with another opinion about what happen house prices. What would a statistical projection look like? The answer is illustrated below.  After 18 months of decline, the Case Shiller index turned positive in January 2012. The year over year comparison of growth looks very benign, growing very rapidly in 2012 and then growing more slowly in 2013 before turning down slightly.


The monthly change illustrates the real volatility in the market.  The market reacted to the restoration of lower FHA loan limits in November 2011 and rebounded, peaking in May 2012.  Prices declined in June but the euphoria about price increases lead investors and buyers to pile in, creating a peak in February 2013.  The investors started to leave at that point and rate of price increase declined.  This process was hidden from the view of market participants because the data lags events.  For example in June the most recent data is for February.  More importantly, the widely followed year over year comparisons masks this activity.  If you don’t understand why the monthly numbers vary, how can you forecast the future? 

The Case Shiller index is on the right scale, while the percent change in the monthly annualized and the year over year is on the left scale. The trend was calculated using 12 months of data. The most recent month was excluded. If it was included the trend line would decline more slowly.  Case Shiller data comes in three batches. So the first month of data is revised in the next two months. The change in the second month, when the majority of the data is available generates the largest change because the prices in the first month’s batch tend to differ from the average.

The 20 cities in the index vary sharply from the average.  Some of the cities move together, but still individual differences are still large.   The three California cities are declining more rapidly and the resort cities that were doing well are growing more slowly, while some cities that declined with the weak manufacturing industry are showing improved results.
  
 Improved employment and the housing inventory do not have much impact on the index in the near term but the prospect of a gain in the price of the house does.  This does not mean that all buyers are looking for gains, but when the prospects of price gain appear enough additional buyers, attracted by the improved investment potential, enter the market increasing price. It also works in reverse.  Price declines cause people to postpone purchases driving prices down. This leads to higher variability in higher priced markets.  
   

Because the variation up and down is so great in this period the regression is low – 38%.  However the trend is the best indication of the central tendency of the index.  The trend of the last year is an annual decline of 0.7% per month turning negative in March of 2015 reporting with wide swings in monthly results.  These large swings up and down are characteristic of a change in direction of an index which has yet to stabilize.  Thus the monthly results will vary widely from the central tendency until the market becomes more stable. The central tendency is like the forecast of a hurricane.  The cone of uncertainty increases the further out the projection goes. 

Wednesday, May 28, 2014

Case Shiller growth is way above trend


Economists predicted that the Case Shiller 20 city index would grow by 0.7% this month. Instead it grew by 1.2%.  The forecasts were an indication of the price trend, but the Case Shiller cites vary substantially by month.  The following chart tracks the last 12 months of monthly prices changes adjusted to an annual rate. The 1.2% rate is equivalent to 16% annual growth. In the last 12 months the Case Shiller has shown substantial variation, but the trend line shows a decline of half a percent per month.    

Forty percent of the difference from forecast is attributable to Detroit, which appears to be on its way out of bankruptcy.  Prices grew at a rate of 3.7% - an annual rate of 55%.  Another problem is that closings come in over three months. The prices of closings that come in the first month will differ from average of the first and second months and change again in month three.  This difference can be substantial. The seasonal adjustments are small but they also are a source of error.


This is not a new issue. Months like this lead Case Shiller to promote year over year price comparison to make the data appear more creditable. However this data is misleading. The recent year over year numbers have been more influenced by large swings in 2013 than those in 2014.  This month the index rose 1.2% from 0.8%. But the Case Shiller year over year index went down because March of 2013 was so much higher. It is very misleading. 


Prices should grow at a lower rate in the coming months. The price growths of more expensive markets such as the 3 cities in California which make up 27% of the index are falling.  Los Angeles was 358% of the start of the expansion while Dallas was 135%.  Dallas affordable housing has helped growth while Los Angeles growth is poor. Price growth in Los Angeles is declining because prices are unsustainable. Los Angeles prices are twice the inflation adjusted level that they were in 1997. Prices for the Case Shiller index are 150% of 1997. The Case Shiller trend is 10% which is twice the rate for the nation.  Most of that national growth is in the Case Shiller cities. The Case Shiller gives the appearance that prices are stronger than they are. A drop in these cities could cause national indexes which get little attention to turn negative and get attention causing house buyers to postpone purchases.

For example, in cities like Columbus, Ohio, which did not grow rapidly in the housing bubble, prices grew 3.6% in the first quarter, an annual rate of 15%. Yet prices adjusted for inflation are 80% of the price at the start of the bubble in 1997.  Prices have room to grow but purchasers could be impacted by reports of a national price decline.

Thursday, May 1, 2014

House Price Risk masked in current data



House price trends - misleading stability
David Blitzer of S&P said “Prices remained steady from January to February for the two Composite indices”.   True, but it ignores the negative underlining trend. The Case Shiller 20 city index is 12.9% above February of last year.  Next month will be 11.7 % because of the explosive growth in March 2013. Even if the next monthly index fell by a third, it would only lower the year over year number by two tenths of a point. What is the value of knowing what happened in March of last year? That is what the 12 month number is measuring in the current environment.  The year over year measurement is a backward looking view that does not account that is for the rapid decline in the price index shown in the chart below:

The California cities (Los Angeles, San Diego and San Francisco) represent 27% of the 20 city index, so a sharp change will have an outsized impact on the total index. Prices in the latest month grew at an annualized rate of 9.5%- down 0.6% from the prior month.  However, 10 months ago prices were growing at 24% annually up from 3% growth in January 2012.  In November, the cities outside California came very close to the California results. The 17 city prices grew at 13% in November but declined to 7% in February.  

The sharp decline in the 17 cities is masked by the pop up of prices in California. The standard deviation of monthly price data is high and it soars in expensive cities.  This month the rate of price increase in San Francisco and San Diego dropped sharply while in Los Angeles it doubled.   The variation in the 17 cities was much less. However the four resort cities, Miami, Phoenix, Tampa and Los Vegas all experienced low price growth after months of high growth. New York and Washington and Cleveland had lower growth while Chicago and Seattle were higher.  In part this is because the first month is only one of three months of data but mostly it is because local markets are volatile.  This housing data has to be looked at as a trend of several months or similar cities batched together.  In January the index for that month was 10.6%. It was restated to 10.1% and the next month came it at 9.5% -a  !.1% decline.


The Case Shiller data is very reliable if used with care. Publishing a 12 month average with volatile data is a great way to avoid embarrassing questions about data credibility by creating a false impression of stability. However this sets up the forecaster for nasty surprises.   The likelihood that the California cities will resume their decline is high and if that happens the Case Shiller index will take an unexpected drop. 

Saturday, April 5, 2014

Why the consensus house price forecasts are wrong.


Mark Fleming, Corelogic’s chief economist, views are typical of the consensus.  In his February post, Popping the Housing Bubbly Theory,  he concludes;  “analyzing home price levels relative to fundamental prices leads us to conclude that there is no need to fear a bubble for at least a few years to come, if at all.” He believes that house prices will continue to rise through 2015.   The housing consensus has been wrong for the last three years, so will it be right now?


This data for the Case Shiller index illustrated below demonstrates the rapid increase in prices which began in March 2012, peaked in March 2013, only to fall 55% in the last 10 Months.
Prices in the Case Shiller California cities (Los Angeles, San Francisco, and San Diego) average 273% above the start of the cycle in June of 1997, while inflation is 146% so in real terms prices are 185% above the start of the cycle. In normal times the prices would fall, but these are not normal times.  Government programs and low interest rates lead them to grow faster.   In this particular case prices declined in 2011 in advance of expected return to normal FHA loan Limits. When the higher loan limits were restored prices jumped. The increases fell off in June 2012 but by then expectations of higher prices, investor purchases, and the fear of increasing mortgage rates sent prices soaring.  The high priced cities in California experienced the sharpest growth.  They increased 36% in two years.

 This increase cannot be explained by macroeconomic indicators.  It is more likely an example of Fed Governor Jeremy Stein’s concern about reaching for yield causing distortions in the housing market.  Pushing prices up that will come down painfully in the future. California was the area most affected by investor purchases because the high prices make this an attractive strategy. 

The Case Shiller index is priced far above the national market. It is an index of volatile markets, but it is an excellent index of price behavior.   In the current reporting period San Francisco and San Diego are growing at over 20% per year. Since California cities make up 27% of the Case Shiller and 12% on national housing value they have a big impact.  The FHFA expanded index of national prices, which is similar to the Case Shiller in methodology and result, grew at 5% per year in the latest quarter. Outside the 20 cities price increases were only 1 % per year. 

 Regional housing cycles in the United States have ended up where they were adjusted for inflation. They are slow moving and go on for years regardless of the business cycles. This is illustrated in the following chart.
The growth in prices to the peak correlates with the drop to the second quarter 2009 at 92%.  After this period, government stimulus programs raised the Case Shiller cites but the areas outside these cities continued to decline. The real price of the Case Shiller cites are 45% above the start of the bubble while the prices outside these cities are 5% below.

Of course some markets outside the 20 cities are high priced and volatile and some of the 20 cities are stable. Real Estate is driven by location, location, location.  But this data indicates that housing can be considered as a two track market. In markets which are restrictive in permitting new housing, programs to help lower income buyer will drive prices in the entire market. More purchases at the low end create move up buyers and prices increase in all price ranges. 
  
The downside of monthly data is the high standard deviation. The high priced cites have the highest standard deviation.  The time lag is substantial. The data for March reporting covered January closings, most of which were negotiated in November. Both the Case Shiller and FHFA report data over a thr
ee months period as the data becomes available.  In April reporting, more January closing data will be added to the first month’s batch. The final batch will arrive in May reporting. The second batch of data produces the greatest change so the first month of data does get the largest revision.

One problem casted by the time lag is the effect of the cold winter. This is likely to have depressed purchase activity and prices starting with the December to March negotiations which will be seen in April to August reporting. But that effect will be difficult to identify. 
   
Fleming talks about prices being undervalued because of rising income and greater housing affordability. This theory will be tested very soon.  An obvious conclusion is that prices will decline in the Case Shiller cities in the future contrary to Fleming’s view.