Wednesday, December 1, 2010

The Forgotten Credit

The latest Case-Shiller Home Price Index was just released for September 2010. An AP article discussing the September release quotes "analysts" as explaining the 0.7% drop from August 2010 as due to "high unemployment, tight lending standards and millions of foreclosures.". I find that hard to believe. Why? Because September prices are based on contracts signed a few months earlier---prices are finalized and dated according to closing, not according to the original contract (termed the "Purchase and Sale" in Massachusetts). Also, the Case-Shiller index uses a three-month moving average---the "September" prices are actually an average of August, September and October prices. Assuming there was a rush to complete contracts before the tax credit deadline, April 30, 2010, and closing was typically 3 months after the initial contract signing, then the "September" prices are the first 2010 prices which are not biased by the tax credit. I.e. the drop in prices is more likely due to the tax credit than the usual slew of factors that lazy writers cite. Possibly worth noting is the fact that September 20 city composite prices are higher than they were a year ago even though September 2009 was biased by the first-time homebuyer credit. So, chances are good that if the government hadn't wasted a ton of money mucking with the housing market, house prices would be rising steadily now.

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