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The Roundup September 29

A really crappy house
For the real estate agent, it’s a “starter home.” For the seller, it’s a “fixer-upper.” For the buyer, it’s a “pile of crap.” If they can agree on a price, for the statistician, it’s an “outlier.” Here endeth the statistics lesson.

Housing prices have gone up for the third straight month! Unless, of course, housing prices went down this month.

U.S. home prices in July rose for the third straight month, surpassing forecasts and suggesting that the housing market is stabilizing after a three-year plunge.

The S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 percent in July from June, more than triple the estimate of a 0.5 percent rise found in a Reuters poll. The index rose 1.4 percent the month before . . .

The data relieved investor concerns about the impact of a weak housing market on the economy and U.S. stocks opened higher.

Okay, the Case-Schiller numbers were released today (Tuesday) and cover the month of July. But five days ago, the National Association of Realtors released data showing a substantial drop in both existing home sales and the median price paid for homes for the month of August. Now, remembering my perennial dictum that “economists don’t know the answers a whole lot better than the rest of us don’t know the answers,” why should numbers from July ease the fears caused by truly sucky housing sales statistics from August?

There are two perennial problems haunting the economic and business reporting in our beloved but buffoonish media. The first is the instant amnesia; I looked high and low and not one article detailing the Case-Shiller numbers for July pointed out that the NAR numbers for July also showed an increase in housing sales and median prices (the numbers were different, but NAR showed four consecutive months of housing price increases ending in July and Case-Shiller showed three months of median price increases ending in July) while just five days earlier, the NAR numbers showed a sharp decline in home sales and prices.

The second ever-present problem is that they never really explain this stuff. They just report the numbers, which leads to an attentive reader’s perfectly valid confusion about why good numbers in July trump truly awful numbers in August.

The answer lies in part in the way the NAR and Case-Shiller actually figure out these numbers. The NAR numbers are something closer to the raw statistics; and statistics, as everyone but the media seems to know, lie. In this case, as just more or less pure house sales statistics, the NAR statistics are affected by what kind of houses are sold in any one month. If, for instance, a whole bunch of low-end houses are selling while the market in high-end houses locks up, then the median price of homes will drop (this was the case during the first part of this year). But the prices of both cheap and expensive houses may actually have gone up — it’s just that the increase in low-end house sales skews the numbers downwards. If, on the other hand, the market in expensive houses picks up while the market in low-end housing drops, then the median price will go up.

The Case-Shiller index tries to correct this statistical “lie” by focusing only on repeat sales of the same homes over a three month period. Rather than deal with the prices of all homes sold, Case-Shiller only focuses on the prices of homes that are resold in one three month period. Do you see the difference? Case-Shiller not only compares apples to apples and oranges to oranges, but compares this apple to itself and no other apple (or orange) and that orange to itself and no other orange.

Case-Shiller also removes sales that screw up the numbers, such as sales of a home by one relative to another relative (which is typically way below the market value of the house and skews the averages and medians down) or houses that are being repeatedly sold over and over and over again. Then they do some more fudging with the numbers (what we call “fudging the numbers,” statisticians gussy up by calling it “weighting,” which simply means that they take some of the numbers more seriously than others) of the sales pair numbers to try to eliminate other statistical lies, such as any factors that could influence price such as the likelihood of physical changes that affect the value of the property (such as remodeling or damage).

So, taken altogether, the Case-Shiller numbers represent a more accurate picture of housing prices. But they also take longer to figure out, which is why the NAR numbers for August were released five days ago and the Case-Shiller numbers for the month previous just came out today.

So what do these numbers mean? If anything? Certainly not enough to justify both a stock and bond rally as we’ve enjoyed today. Both the Case-Shiller numbers and the NAR numbers have fairly weak correlation with stock prices, commodities, and Real Estate Investment Trusts (!) So, to be honest, the Case-Shiller news is actually no news. The Case-Shiller report in general validates the NAR numbers from July, but has little weight in light of the NAR numbers from August. We are, sad to say, still knee-deep in doo-doo.


The Federal Reserve takes on the credit card companies . . .

The Federal Reserve proposed tough credit card rules on Tuesday to protect consumers from potentially costly practices by lenders, and moved to put in place legislation enacted in May.

(“Fed Proposes Rules on Credit Cards ,” The New York Times, September 29) Now that credit card companies have already raised their rates to mobster-lender levels, have already double-cycled billions of dollars of existing balances, have already put into place byzantine death-by-a-thousand-cuts charges, now, only now, is the Fed getting serious about implementing the law. It’s a good thing to know that all those credit card balances with interest rates north of 25% aren’t going to have a rate increase in the next 12 months. And the only real solution, it seems, is YouTube. If you haven’t sliced your credit cards into nice little bite-sized pieces, well, you’ve got a little bit of the curse of the Black Pearl in your wallet, don’t you?


It’s Wells Fargo or nothing, really.

CIT Group (CIT, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Banco Popular of North America and others that once held top spots have cut their SBA lending by more than 70% this year. Meanwhile, Wells Fargo upped its loan volume 4%, from $583.4 million in 2008 to $605 million this year.

Some of that gain may be fueled by Wells Fargo’s late-2008 acquisition of Wachovia, another bank that traditionally made many SBA-backed small business loans. The acquisition closed three months into the 2009 fiscal year (which the SBA began Oct. 1), leading Wachovia and Wells Fargo to report their loans separately through part of the year.

(“The last bank left standing for small businesses,” CNN Money, September 29) CIT is unlikely to start lending to small businesses in the next couple years, and folks like Temecula have essentially dropped out of the small business market entirely. While Wells Fargo will continue to grow its small business loans until they rival what would’ve been CIT’s level, it’s unlikely they will ever be able to make up for the sharp dropsin small business lending at CIT, Popolar, and Chase. So the news really is this: if you need a small business loan, don’t count on it.

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