With Tuesday’s release of the July Case Shiller home price indices, including Chicago, we saw a continuation of year over year price increases but at a slower rate than we have seen in the last 20 months. But that’s OK, right? As long as prices are still going up. But maybe there’s some evidence of Chicago home prices heading down.
In my last post I focused on the same Case Shiller home price index numbers that everyone else (the mainstream media) focuses on. They’re not adjusted for seasonality – the fact that home prices always go up at this time of year. So how would you know if home prices are going up as much as they “should” for this time of year. If they aren’t then in reality the overall trend is really down.
But there is another set of Case Shiller numbers that are seasonally adjusted and when you look at those they are saying that Chicago home prices are heading down right now! This was brought to my attention yesterday by John Dolan, the market maker for the Case Shiller futures contracts. John posted an article in his blog yesterday on this very subject and the fact that the seasonally adjusted Case Shiller numbers are pointing down while the futures prices are pointing up. In fact, the seasonally adjusted numbers for Chicago have fallen for the last 3 months. July was down 1.6% from June.
So, either the “market” is wrong or the seasonally adjusted numbers are wrong. Admittedly John IS the market for these futures contracts, because they are so thinly traded, so John could be wrong. But as John points out he can’t be too wrong because if he was some smart person would come along and trade against him.
John obviously thinks the seasonal adjustments are wrong and he has a cool chart in his blog post that seems to prove it. He plots the seasonal adjustment factors over time and shows them increasing for most of the cities tracked. Chicago stands out as having one of the factors that changes the most over time.
I’ve noticed before that the seasonal factors change over time and I never understood it. A) How would you ever determine how much they should change by and B) How would you ever justify them changing?
John comes at this from a different perspective. He thinks that the Case Shiller people have been thrown off by the fact that distressed property sales have historically had a much bigger impact on prices at seasonal lows than they do now. So he’s betting on those factors being wrong. He’s got a 6.3% price increase baked into his prices for the next year.
However, if you believe that Chicago home prices are heading down then feel free to trade against John.
#caseshiller #homeprices #realestate
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