The Office of Federal Housing Enterprise Oversight (OFHEO) reported today that its home price index fell 0.3% in May compared to April, and that prices were down 4.8% compared to a year earlier. Expectations were for a drop of 0.8% for May. These figures stand in stark contrast to the widely followed Case-Shiller index, which shows that home prices are down 15.3% on a year-over-year basis.
The differences reflect a number of factors. For starters, OFHEO's index is broader, covering far more than the 20 metropolitan markets covered in the Case-Shiller index. Moreover, the 20 markets covered by Case-Shiller are those that have seen significant price volatility in recent years.
A second factor is the fact that OFHEO's index contains only those homes that are financed by agency mortgages, which tend to be far better underwritten than the universe of mortgages. In other words, OFHEO's index will not capture either the subprime or jumbo markets well.
The net of all of these factors means that home prices are probably falling by less than the too-narrow Case-Shiller index suggests, but more than OFHEO is suggesting because that agency does not include subprime and jumbo mortgages. The answer is thus in between, although the broadness of OFHEO's index puts a modest lean (from the midpoint of the two) toward OFHEO, at least in terms of the national average.
Tony Crescenzi Blog Fed Hawk Hits Bonds 7/22/2008 9:38 AM EDT The Philadelphia Fed President's comments sparked a reversal in the bond market.
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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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