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.
