Don’t Put Too Much Faith In October’s Case-Shiller Index
The Case-Shiller Index posted awful numbers in its most recent reading. Each of the index’s 20 tracked markets showed home price deterioration between September’s and October’s respective reports. Some markets fell as much as 2.9 percent.
The drop in values is nothing about which to panic, however. The Case-Shiller Index is just re-reporting what we already knew. It’s a common theme with the Case-Shiller Index, actually; a trait traced to the report’s methodology.
The Case-Shiller Index is an imperfect housing indicator with 3 inherent flaws.
The first flaw is that the index makes use of a limited data set, tracking values in just 20 cities nationwide. That data set is then projected across the more than 3,100 other municipalities in the United States. The “national figures”, therefore, aren’t really national.
The second flaw is that, even within the tracked 20 cities, not all home sales are included. The Case-Shiller Index only tracks sales of single-family, detached homes, and within that market subset, it only uses homes that are “repeat sales”. This specifically excludes sales of condominiums and multi-family homes, and new construction.
Lastly, Case-Shiller Index’s third flaw is its “age”. The Case-Shiller Index reports on a 60-day delay, and the values it reports are tied to contracts written even longer ago. Sales contracts from July and August are responsible for October’s closings so when we see the Case-Shiller Index as reported in December, some of the data it’s reporting is 5 months old already. That’s too old to be relevant.
Looking back at 2010, housing was at its weakest between May and August. Therefore, it’s no surprise that the most recent Case-Shiller Index shows significant weakness. Looking forward, we should expect the report to improve — especially because of how strong New Home Sales and Existing Home Sales have been since summer.
The Case-Shiller Index is helpful for economists and policy-makers. It’s not much good for individual homeowners, however. For accurate, real-time housing data, talk to a real estate professional instead.
September’s Case-Shiller Index Reflects A Slowing Housing Market
Standard & Poors released the September Case-Shiller Index Tuesday. The Case-Shiller Index is a home-value tracker. The report shows home prices down 0.7% from August and values fading, in general.
Case-Shiller representatives assessed the findings as “another weak report; weaker than last month”, citing deterioration in 18 of 20 tracked markets. Upward pricing momentum from the summer is slowing and values remain 30% off the market’s June 2006 peak. It could spell bad news for home sellers in Hiawassee, Blairsville and Blue Ridge this winter.
That said, the Case-Shiller Index is imperfect; its methodology flawed. The index is not meant for use by individual buyers or sellers — for 3 reasons.
First, the Case-Shiller Index reports on a 2-month delay. Today is December 1 and we’re discussing data from September. In the 8 weeks since, the economy has shifted to a net jobs gainer, and the Federal Reserve has committed to $600 billion in re-investment. These are major developments that weren’t a part of September’s housing market, but are relevant today.
Especially because employment is largely believed to be a keystone to housing.
Second, the Case-Shiller sample set is limited to just 20 cities nationwide. This means that most U.S. home sales are specifically not included in the Case-Shiller Index’s monthly findings.
And that ties into reason number three — all real estate is local. No matter what the Case-Shiller Index says about the country, what matters to your local market is what’s happening in your local market. Each neighborhood has its own housing economy and that’s something that can’t be captured by a national report.
Home Values Up An Average Of 0.4 Percent In August
Consistent with the most recent Case-Shiller Index, the government’s Home Price Index said home prices rose between July and August.
The Federal Home Finance Agency’s data showed values up 0.4 percent nationwide, on average. Region-by-region, however, the results were scattered. Coastal states tended to perform poorly. Plains states tended to perform well.
A brief look at the regional disparity:
- West South Central : +1.5%
- East North Central : +1.2%
- Pacific : -0.2%
- South Atlantic : -0.2%
Breakdowns like this are important because they highlight the fundamental problem with national real estate data and that home buyers in Blue Ridge and Blairsville don’t buy real estate in a national market, or even a regional one.
Buyers buy local, and here in the North Georgia Mountains that can change even within each county.
When we look at national figures like the Home Price Index, it’s important to remember that real estate is a collection of tiny markets which, when lumped together, form small markets which, in turn, lump together into larger markets and so forth.
To illustrate this point, a deeper look at August’s Home Price Index data shows that, within the aforementioned Pacific Region, in which home values fell 0.2%, the state of California posted a 2.9% increase. You can be sure that within the state of California, there are cities that performed better than the 2.9 percent, and within those cities, there are neighborhoods that did the same.
Real Estate is most definitely local.
That said, we can’t discount the national report entirely. Broader housing statistics like the Home Price Index reflect on the economy and are often used to help shape policy in the nation’s capital. When you need to know what’s happening in your hometown, though, your best source of data is a knowledgeable real estate professional.
Case-Shiller Shows Slowing Growth In Home Prices
For the 17th straight month, the Case-Shiller Index reports that home values are rising across the United States. As compared to June, July’s prices were up by 4 percent.
However, despite the improvement, July’s Case-Shiller Index showed weaker as compared to prior months.
- In June, just 3 cities posted year-to-year reductions in home value. In July, 10 of 20 did.
- In June, just 1 city posted a month-to-month reduction in home value. In July, 7 of 20 did.
As a spokesperson for Case-Shiller said, values “crept forward” in July. But not that it matters — the Case-Shiller Index is a better tool for economists than it is for homeowners in Hiawassee. This is for 3 reasons.
First, the Case-Shiller Index is on a 60-day delay but Real Estate Sales are based on prices today. A lot can change in 60 days, and it often does. Therefore, the Case-Shiller Index is a better snapshot of the former market than the current one.
Second, the Case-Shiller Index is geographically-limited. It tracks just 20 cities, ignoring some of the largest metropolitan areas in the country including Houston, Philadelphia, and San Jose. Smaller cities like Tampa are included.
And, lastly, national real estate data remains somewhat useless anyway. All real estate is local, rendering citywide statistics too broad to have any real meaning to an individual. To find out what’s happening on a neighborhood-by-neighborhood level, you can’t look to a national survey — you have to look to a Local Real Estate Agent instead. Please give me a call at 706.994.8686, or Contact Me and I will be more than happy to give you an in depth Real Estate Market Report for your specific area.
I look forward to hearing from you soon. Make it a Great Day!
Is The Case-Shiller Index More Accurate Than The Home Price Index?
The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.
According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.
So, as a home buyer and/or homeowner in Blue Ridge or Blairsville, by which valuation model should you make your bets? Perhaps neither.
This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets.
The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population.
That’s hardly representative of the housing stock overall.
By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties. The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing.
The HPI ignores homes backed by “jumbo” loans, too.
Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as an area such as The North Georgia Mountains. A real estate agent in the area does, however.
The best way to get a pulse for what’s happening in markets right now is to Contact Me, or visit my Georgia Mountain Market Reports.
