The Foreclosure Five Dominate Case-Shiller Price Indexes

A CNNMoney.com report, “Home prices in record drop,” posted a scary map labeled “Falling Homes Sales.” But it actually shows falling home prices. Within the S&P Case-Shiller sample of 20 metropolitan areas, the steepest drop in prices (not sales) were in Phoenix, Las Vegas, San Francisco, Los Angeles, San Diego, Tampa and Detroit.

All 7 of those metropolitan areas (7 out of 20 in that index) lie within 5 states with by far the worst mortgage problems, as shown in my February 21 article, “The Foreclosure Five.” Yet I also showed that states with the steepest price declines also have had huge increases in home sales, which makes the label on the CNNMoney map doubly misleading.

My article used third quarter house prices because fourth quarter figures were not yet available. That turns out to make even less difference than I expected.

The fourth quarter Federal Housing Finance Agency (FHFA) figures show home prices down 21.8% for the year in Nevada, 20.5% in California, 15.2% in Arizona, 19.5% in Florida, and 11.8% in Michigan. Prices were down 3.7% in the median state, North Carolina, but up 21.6% over five years. That means prices fell by less than 3.7% last year in 24 states— including a half dozen states with home prices up a bit, and New York with only a 3.3% decline.

CNNMoney says, “The decline does not seem to be slowing - just the opposite. The average home price dropped 2.5% between November and December in the 20 top metro areas.” The FHFA data for all 50 states, by contrast, show a small 0.1% increase in home prices between November and December.

The article goes on say, “The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007. Case-Shiller’s index of 20 major metropolitan areas fell 18.5%, also a record.” The FHFA, by contrast, shows that prices fell just 8.2% during the last three months of 2008, or 3.7% if using a median average. Ten percentage points is quite a wide gap.

What accounts for such huge differences between Case-Shiller and federal price indexes? CNNMoney imagines it’s because “Homes purchased without financing or ones too expensive to qualify for a Fannie-Freddie loan are not counted in the FFHA (sic) statistics.” That’s more than unlikely. The inclusion of cash sales and jumbo loans (larger than $729,750 in pricey area) can’t possibly explain why price declines in the Case-Shiller index look so much more dramatic those in the OFHEO/FHFA index.

The real reason is simple: Case-Shiller indexes are hugely dominated by the Foreclosure Five. In the Case-Shiller index of only 20 “top” metro areas, the Foreclosure Five account for 41.2% of that value-weighted index with California alone accounting for 27.4%.

The “national” Case-Shiller index totally excludes 13 states, such as Indiana and South Carolina, and samples only a fraction of many others. The Foreclosure Five account for 28.3% of that “national” index, with California amounting to 17.1%.

As is true of nearly all reprorting about foreclosures, underwater mortgages and falling house prices, what the Case-Shiller price index really shows is that many people are confusing what has been happening in the Foreclosure Five with what has been happening in the nation as a whole.

The ‘Inane and Insane’ World of Federal Criminal Law

Over at  Sentencing Law and Policy, Douglas Berman takes a look at a recent federal case:

I cannot help but wonder if the authors of the Bill of Rights would have been even more troubled by the ugly way federal criminal power is exercised here.  Rather than having state authorities indict and try the defendant for all his local crimes, the feds come in, secure a conviction through a broad regulatory law, and then obtain a long prison sentence by “proving” state crimes to a federal district judge (by a preponderance of evidence) at sentencing.  Thanks to modern criminal justice realities, federal prosecutors can easily make a sentencing end-run around most of the constitutional criminal procedure rules the Framers put into the Fifth and Sixth Amendments.

It’s not just one case.  This is a trend in the federal courts.  In my new book, In the Name of Justice, I identify many other ways in which the government is going over, under, and around the Bill of Rights.

Dems Want D.C. Vouchers Dead. Hope Someone Else Pulls Plug.

Republican leaders in the House say that Democrats are using the 2009 omnibus spending bill to try to kill the D.C. voucher program. Democrats deny the charge. Who’s right?

Created in 2004, the D.C. Opportunity Scholarship Program was originally authorized for 5 years – a term that would have expired this June. While a typical reauthorization would have extended the program for another five years, Democrats have explicitly authorized funding only through the 2009-10 school year. If that truncated funding were not enough to worry participating families, Democrats have also called for the granting of a new veto power over the program for the DC City Council. If the bill passes as it is currently written, the voucher program can only be funded if it is reauthorized by both Congress and the City Council.

Clearly, this new language doesn’t kill the Opportunity Scholarship Program outright. Just as clearly, it puts the program on life support, and it suggests that Congress is hoping the DC Council will pull the plug for them, so that they can’t be directly blamed for kicking 1,900 children out of private schools that they have chosen and become attached to.

Critics of the program complain that, after its first two years, it had still not raised overall student academic achievement by a significant margin (though parents are happier with their voucher schools). What is less well known is that the program has proven to be dramatically more cost effective than the DC public schools. While voucher and non-voucher students are performing at about the same level, DC public schools spend more than four times as much per student. Total per pupil spending in DC was $24,600 in 2007-08, while voucher schools receive an average of less than $6,000.

If you could save 75 percent on a purchase, get the same quality of service, and know you’d be happier with the result, wouldn’t you do it? It seems Congressional Democrats would not.

Should America Defend Europe if it Won’t Defend Itself?

Iceland, in the midst of economic crisis, is considering closing its defense agency. Reports the Iceland Review:

Former Minister of Justice Björn Bjarnason described the Iceland Defense Agency as “remnants of times past” and said it might even complicate defense relationships with other nations. The Coast Guard should be focused on instead.

It may well be true that Iceland doesn’t have many enemies. But if the Europeans don’t believe they need defending, then isn’t this another good reason to bring home America’s troops? Certainly there’s no reason for the U.S. to defend countries which don’t bother to field militaries themselves!

PTO Error/Trademark Abuse Update

Two weeks ago, I published a TechKnowledge article telling the story of how a mistake at the U.S. Patent and Trademark Office and some sharp lawyering had put a small business on the ropes. The Nordstrom retail chain appeared poised to use the PTO’s processes to grind under an organic yoga and lifestyle clothing business called Beckons so it could take their trademark.

Not so fast, said the blogosphere. Several blogs picked up the story, as did the trademark bar. Hearing from disapproving customers, Nordstrom made sounds about a compromise.

That was well-executed PR, and it tamped down the story, but two weeks later there is no compromise. Nordstrom’s motion to cancel two small businesswomen’s trademark still stands. The women’s legal bills are still stacking up, and Nordstrom’s apparent gambit to take away their trademark is still playing out. It’s a case of pure and simple abuse which I will continue to follow and report on here.

Earlier this year, in a parallel case, Monster Cable Products relented from its wrongful trademark-based attack on a small business called Monster Mini Golf (dissimilar products = no likelihood of consumer confusion from using the same name). The head of the company realized that his attorneys had driven him into a legal and public relations dead-end, and he agreed to dismiss his company’s actions and reimburse Monster Mini Golf’s legal bills.

In today’s increasingly watchful and empowered, Internet-driven marketplace, it’s bad for business to use legal and regulatory processes unfairly. We’ll see if that lesson takes root in this case.

New Podcast: ‘Most Banks Are Fine’

If it ain’t broke, don’t fix it, says Cato Senior Fellow Gerald P. O’Driscoll Jr. of the country’s banking system. Since more than 90 percent of U.S. banks are doing fine, why all the talk about nationalizing them?

In today’s Cato Daily Podcast, O’Driscoll explains:

If you think the bank is insolvent, certainly it should be resolved. But do we really want to see the government running very large financial institutions? In effect, we already have seen that movie, it’s Fannie Mae and Freddie Mac, and they’re not doing such a good job of it.