How did the Housing Market Fare in 2019?

** Intended for New Graduates / Analysts **

(Click on the image to enlarge)

Michael, an Econ graduate with three years of experience as a Housing Analyst, is interviewing for Senior Research Analyst with a major consulting firm.

Question # 1
Interviewer: Would you have combined these two graphs into one? 

Michael: Yes, since they both represent the same data period and considering the value ranges are not too far apart, I would have used one graph, stacking up the lines.  

Question # 2
Interviewer: Why not Y1 and Y2 instead of stacking up the lines on one Y axis?

Michael: As I said, the value ranges are not too far apart to justify the use of Y1 and Y2 axes. 

Question # 3
Interviewer: As far as this graphic presentation is concerned, please name two issues that positively appeal to you. 

Michael: No. 1 -- The Underlying data as it represents Case Shiller indices. No. 2 -- Combining the data tables with the graphs.

Question # 4
Interviewer: Explain the two market trends.

Michael: The trends are very similar. Between January and July, they remained sideways. Since then, they have been trending up in tandem.

Question # 5
Interviewer: Despite having moved in tandem, did one index outperform the other? 

Michael: Yes, the Composite-20 did slightly outperform the Composite-10. While the Composite-10 moved up roughly 5 points, the Composite-20 climbed roughly 6 points, thereby marginally outperforming its counterpart. 

Question # 6
Interviewer: Is there a "hare and tortoise" parallel here?

Michael: Yes, the Composite-10 took a nap in June and July, thus losing the race. In other words, the Composite-10 dozed off in June and July, while the Composite-20 slowly but steadily kept inching higher.

Question # 7
Interviewer: Based on this latest trend how would you characterize the current housing market as an investment vehicle?

Michael: In view of the current reversal to positive trend, I would say this market could be a great investment vehicle for seasoned flippers looking for an arbitrage on fixer uppers.

Question # 8
Interviewer: Are you saying that this is not the right time for a random homebuyer looking for a primary residence?

Michael: Not at all. Anyone with a good time horizon may buy a primary residence at any point of the business cycle. Of course, since the housing market has eclipsed the pre-recession highs, I would caution random homebuyers who have limited or uncertain time horizon. 

Question # 9
Interviewer: How would you advise our community bank clients?

Michael: I would urge them to closely follow the developments in the secondary market, as well as any emerging shifts in securitization practices. Considering the significant run-up in the housing market in last 8-9 years, I would definitely urge them to practice prudent risk management.

Data Source: Case Shiller Seasonally-adjusted Housing Indices as published on 02-25-2020

-- Sid Som, MBA, MIM
homequant@gmail.com

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