Cramer: Case-Schiller Not a Good Index for Housing
The Standard & Poor’s/Case-Shiller home-price index is “the single-most pessimistic but least accurate housing metric out there,” Cramer said during Wednesday’s “Mad Money.”
Of course, that never stops the media from jumping all over it when the latest Case-Shiller numbers hit the wire. Consider the reaction to Tuesday’s report, where the index showed a 1-percent decline in November home prices from the previous month and a 1.6-percent pullback year-over-year. “Housing Prices, Already Down, Fall Again,” said The New York Times. “Falling Home Prices Reveal Limits of Recovery,” said The Wall Street Journal. But there’s a big reason why the media—and pundits—shouldn’t be making such sweeping generalizations about housing.
The Case-Shiller index measures only 20 U.S. markets. It’s nowhere near as representative as people make it out to be.
Cramer thinks the Federal Housing Finance Agency’s index is far better. Its numbers are calculated by ZIP code, using the purchase prices of houses that back mortages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. As Cramer said, “It’s a super-granular housing report based on a much larger data set than the 20 cities of the Case-Shiller.” And what did the FHFA index say about home prices just yesterday? That they were unchanged from October to November on a seasonally adjusted basis.
There’s also the data released by the National Association of Realtors. Last week, the NAR reported that existing-home sales jumped 12.3 percent from November to December, the fifth increase in the last six months. The organization’s economist also said that the “recovery will likely continue.” And the inventory of homes was down, while the median price for a home was up (incrementally, but up nonetheless after four years of no gains). The media tends to ignore NAR data, saying it’s biased toward real-estate investing. But Cramer pointed out that when the housing situation was dire, the NAR’s numbers reflected that.
Even the U.S. Census Bureau has solid data to offer. Wednesday morning it said that new-home sales were up 17 percent in December, with the median price of a new home climbing 12 percent from the previous month.
“When you put together all the data from the Federal Housing Finance Agency … the National Association of Realtors … [and] the Census Bureau,” Cramer said, “it’s clear that the housing market’s stabilized, even improving. Certainly not getting worse.”
All of these three are much more rigorous measures of housing than Case-Shiller. And if they’re not enough, then look at the housing-related stocks. Lowe’s , Home Depot , Ethan Allen , Masco , Stanley Black & Decker —they’re all showing gains and then some as this sector rebounds and makes its recovery.
The bottom line here is that investors should forget the negative press reports and the Case-Shiller index, and focus instead on the FHFA, the NAR and even the housing stocks for an accurate picture of what’s going on. The first two rely on anecdotal evidence, while the latter group offers more scientific fact.
And “the real science paints a much more positive picture,” Cramer said.
When this story published, Cramer's charitable trust owned Stanley Black & Decker.
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