The Housing Chronicles Blog: Trying to price your home? Don't trust the various index readings.

Monday, November 24, 2008

Trying to price your home? Don't trust the various index readings.

For many months I've been having the same argument with economists who are forecasting home price reductions of up to 50% or more in previous bubble areas: that doesn't mean all neighborhoods in a particular region will suffer the same fate. Although that also doesn't mean that they'll escape unscathed, factors such as good schools, access to public transit and freeways and jobs are just as important today as they always were. Call it the 'battle of the indices,' but each methodology has its strengths and weaknesses, and the search is on for a system that is the most accurate. From a Wall Street Journal story:

The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month...

To address these discrepancies, indexes are going increasingly local. Other, less-well-known measures of home prices -- some of them available only to paying customers -- are adjusting to exclude homes sold by banks...

The numbers from home-price indexes are widely watched. The Federal Reserve uses them to measure the value of housing stock. Banks use them to determine whether mortgages are underwater and to estimate the value of homes they will have to sell after foreclosure.

But the indexes may be leading everyone astray. Just as respondents to election surveys are meant to stand in for the broader electorate, the homes being sold need to represent all homes. The problem is, producers of these price measures aren't sure that sale prices reflect the values of houses not on the market...

The Case-Shiller index includes properties that had subprime loans attached.

"That's the stuff that went down most substantially, and that's probably the stuff that went up most substantially," Prof. Case says.

The federal index, though, doesn't include such properties, instead accounting only for properties with financing from mortgage giants Fannie Mae or Freddie Mac. For that reason, many prefer Case-Shiller...

Most of the numbers that get headlines are based on metropolitan areas. Yet the housing-market picture can vary dramatically within the same region. Lynn, Mass., a suburb northeast of Boston, saw prices drop 10% in the second quarter compared with a year earlier, according to Wellesley's Prof. Case. Yet in the same period prices in Cambridge, just west of the city, rose 13%.

Integrated Asset Services, or IAS, sells estimates by neighborhood. "We are a lot more granular" than Case-Shiller and the federal index, Chief Executive David McCarthy said.

Click here for full story.

6 comments:

Anonymous said...

You make a great point, Integrated Asset Services' IAS360 House Price Index provides the best data because it's reading the housing market from the front lines. Granularity is key to a accurate house price index. I don't know why Case-Shiller is considered to be the best, I guess it helps to have S&P associated with it...

Anonymous said...

We do live in a granular world. As a Realtor making a good living off the residential market, I know that. 2 of my children are appraisers, 2 of my siblings are lenders, my Dad was a Director of FHA. Everyone working the streets in our industry knows how exceedingly granular. Local employer base is becoming more important as jobless rates rise and surrounding communities fall victim to rising foreclosures.
I watched the tract builders sell tomorrow's slum homes as fast as they could put them up (It doesn't take long to put together a home with staples.) to marginally qualified first home buyers; I
drove by those same homes a year/2 years later boarded up, winterized,
foreclosed because the taxes were assessed. My objections then were a small voice lost in a rush of lemmings. We must make sure lessons are learned. ("Charlie Wilson's War") Make sure the tax money goes to the RIGHT places to fix the dam break. (Banks took bail out money to acquire other banks - is that in the tax payers' highest interest? That should be a requirement.)

olivia said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Joyce

www.webtraffictrigger.com

olivia said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Joyce

www.webtraffictrigger.com

olivia said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Joyce

www.webtraffictrigger.com

olivia said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Joyce

www.webtraffictrigger.com