Speed vs. Accuracy

Among the comments about yesterday’s disappointing S&P/Case-Shiller Home Price release were remarks that the data is old or out of date.    The report of falling home prices came on the heels of better economic news and some upbeat reports about homebuilders seeing strong orders. Some commentators felt that the news of weaker prices was old news.  (see comments at Calculated Risk) While everyone wants up to the minute reports and instant news, there is a trade-off between speed on one side and accuracy and reliability on the other.   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.  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.

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One Comment

  1. Ed Hamilton says:

    I write to note long-term observations/reckoning, with substantial ‘internal consistency’, that includes inferred soundness of S&P/Case-Shiller U.S. National Home Price Index.

    In August 2006, The New York Times published this chart of national home price index, inflation-adjusted.
    http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html
    The NYT straightforwardly observed: “Two gains in recent decades were followed by returns to levels consistent since the late 1950’s.”. (NOTE this remarkable ‘flatness’ — over 1958-1998, inflation-adjusted, using CPI-U, average home price was UNchanged, while CPI-U rose a factor 5.6)!
    This inflation-adjusted history is updated by me in the first chart here
    http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
    and sourcing since 1987 is the S&P/Case-Shiller U.S. National Home Price Index — see last chart.

    The quoted-above NYT observation, plus acceptance of Shiller’s ‘we are not running out of land [USA, nationally]’, allows the following description.
    Since the late 1950s, USA national average home price changes have simply followed consumer price inflation, except for TEMPORARY price bubbles.
    This is simple (Occam’s razor!) … ought-to-be average home price changes follow price changes in the usual: cereal and milk and bluejeans and wheels, etc.

    The foregoing internal consistency and simplicitly are consistent with soundnesses of both S&P/Case-Shiller U.S. National Home Price Index, and CPI-U.

  2. [...] The index claims to be three months ahead of the median home price data from the National Association of Realtors and four to six months ahead of the widely watched S&P/Case-Shiller composites. (The chairman of the S&P index committee went on his company’s blog Wednesday to defend the long lag time in a post called Speed vs. Accuracy.) [...]

  3. [...] Blitzer took to the web to defend the Case-Shiller report against naysayers’ lag time arguments. “While everyone wants up to the minute reports and instant news, there is a trade-off between speed on one side and accuracy and reliability on the other,” Blitzer said in a blog postWednesday. [...]

  4. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the housing [...]

  5. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  6. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the housing [...]

  7. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time, but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  8. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  9. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

9 Trackbacks

  1. [...] this, Blitzer responded on SP’s [...]

  2. [...] The index claims to be three months ahead of the median home price data from the National Association of Realtors and four to six months ahead of the widely watched S&P/Case-Shiller composites. (The chairman of the S&P index committee went on his company’s blog Wednesday to defend the long lag time in a post called Speed vs. Accuracy.) [...]

  3. [...] Blitzer took to the web to defend the Case-Shiller report against naysayers’ lag time arguments. “While everyone wants up to the minute reports and instant news, there is a trade-off between speed on one side and accuracy and reliability on the other,” Blitzer said in a blog postWednesday. [...]

  4. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the housing [...]

  5. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  6. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the housing [...]

  7. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time, but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  8. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

  9. [...] sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time – but buyers, sellers, investors and policymakers need to know what’s happening in the [...]

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