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Professors Case and Shiller: Unplugged

In real estate, when we hear the names Case and Shiller we immediately think of the Case-Shiller Price Index. The monthly index is well respected and oft times quoted by the leading economic news sources in the country. From the Wall Street Journal to the Washington Post, from CNBC to Bloomberg News, when residential home prices are debated the report comes front and center. And for good reason. It is one of the most thorough national pricing indices currently available and is now part of Standard and Poor’s library of economic indicators.

This blog often uses their information when we discuss pricing. It also is the critical information used for the Case Shiller Composite Index Future which trades in future housing prices on the Chicago Mercantile Exchange. Other information the professors’ offer can be found on their website MacroMarkets.

However, instead of discussing the data in the report, today we want to discuss the men behind the report: Professors Case and Shiller. We want to report how they, based on the data, see the housing market as we head into the second quarter of 2010.

Professor Karl E.Case, of Wellesley College was quoted in a  New York Times article in late December:

“I’m worried. Everyone’s worried. If prices sink 15 percent from here, which is a possibility, and the 2008 and 2009 loans go bad, then we’re back where we were before — in a nightmare … The probability is very high of a serious double dip.”

But this month, in an article in  Business Week, Prof. Case said:

“I would bet even odds that we’re at a bottom and that we’re going to see improvement in the coming months.”

Three months have changed his opinion completely even though the index showed little improvement.

Professor Shiller of Harvard University is the true face of the report and is on many television news outlets every month. Does he agree with his cohort’s most recent comments that the market has reached bottom?

In an article in Top News, Professor Shiller while discussing future home prices was quoted:

“What worries me right now is the default rate on mortgages. It might go up because of a change in our sense of responsibility to pay mortgages. People are angry and upset.”

He also was quoted in a Business Week article:

“It’s really hard to use historical precedent, especially now, to predict what’s coming. It’s really ambiguous right now as to where this market is heading.”

It seems that even the founders of the most prestigious pricing index available can’t be sure what will happen.

What does this mean to you?

Whether you are in the market to either buy or sell a home, understanding what the experts are seeing as we move forward is crucial to making the right decision for yourself and your family. What happens when the experts aren’t sure? We can’t be sure either. However, I believe Shiller’s concern about strategic defaults is well founded and I’m convinced housing inventory will increase going forward. If I was going to sell, I’d do it sooner  rather than later.


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