Two readers generously offered their valuable insights on the Case-Shiller OFHEO gap I noted earlier this morning.
Professor Nunes says that the CS index puts too much weight on particular regions. He has a paper showing how Case-Shiller and OFHEO agree much more region-by-region.
It looks like he has an important and very useful point. (I must also confess that he sent me the paper last fall, and I failed to remember his contribution).
Does the regional aggregation issue explain whether which series is right about January: OFHEO suggests we hit bottom and CS suggests that we're still going down? (Note: Professor Nunes does not like national (as opposed to regional) analysis of housing, so he may be understandably unwilling to answer). Note that OFHEO said that nearly all regions (the West being a notable exception) increased in January.
Sean MacLeod of Metacapital Management emails that "those in the mortgage finance market believe the OFHEO data to be c#$p." He prefers Case-Shiller and a third series, RadarLogic.
I am not sure CS is so much better. In particular, CS says that national housing prices almost doubled (relative to construction costs!) during the boom, which seems reasonable for a couple of regions, but a huge exaggeration for most of America. On the other hand, the OFHEO index was late in showing the bust (see the chart below, which measures both relative to the residential construction PPI). That's why I look at both, and support the Employment for Economists Act!
Many thanks to Mr. MacLeod and Professor Nunes! Housing prices are an incredibly important economic indicator these days, so their insights are worth many times more what I and the readers of this blog are paying for them!