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S&P Defends Lag Time of Case-Shiller Numbers for the Sake of Accuracy

Tuesday's ""S&P/Case-Shiller release"":http://dsnews.comarticles/case-shiller-indexes-down-for-fifth-straight-month-2012-03-27 on home prices was labeled ""disappointing"" by a number of analysts and market participants as both the 10- and 20-city composites and eight cities â€" Atlanta, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle, and Tampa â€" set new cycle lows.

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David Blitzer, chairman of the index committee for S&P Indices, noted himself that the report of falling home prices came on the heels of better economic news and upbeat reports about homebuilders seeing stronger orders.

With the Case-Shiller numbers failing to fit the mold of improving market and economic conditions, several commentary notes from analysts dismissed the latest home price results as ""old news"" and ""dated.""

John Burns Real Estate Consulting says Case-Shiller doesn't reflect what's currently happening in the market because like most indices, it bases its findings on transaction closings, which typically occur two months after the price was negotiated and agreed upon.

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A posting on _Calculated Risk_ also noted that the January Case-Shiller numbers actually represent a three-month average for house sales recorded in November, December, and January.

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 post"":http://www.housingviews.com/2012/03/28/speed-vs-accuracy/ Wednesday.

Blitzer explained that 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, which means data doesn't manifest quickly.

""If you want an accurate picture of what is happening, it takes time,"" according to Blitzer. ""So, unlike stock prices which are available in real time, house prices come with a lag.""

He also noted that because home prices tend to bounce around a lot, the indices are reported as three month moving averages to give a better indication of trends. Blitzer referenced one comment in particular that suggested a weighted average 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,"" Blitzer said. ""For the S&P/Case-Shiller indices, the trade-off between speed and accuracy means waiting a little while in exchange for better accuracy.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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