Ignore The Case-Shiller Index; Focus On The Future Instead

Filed under Case-Shiller Index by on March 2, 2011 at 7:47 am {no comments}

Case-Shiller December 2010

Last week, Standard & Poor’s released its for December 2010. The index is a home valuation tracker, meant to meausure the change in from one period to the next.

December’s Case-Shiller Index showed major devaluations nationwide. As compared to December 2009, on a year-over-year basis, fell in 18 of the Case Shiller Index’s 20 tracked markets, and the U.S. National Index dropped 4 percent overall. 

The retreat puts December’s home values at similar levels as compared to early-2003.

That said, buyers and sellers would be wise to take the findings lightly. The Case-Shiller Index is inherently flawed. As such, its results are neither practical — nor relevant — to everyday Americans.

There are 3 Case-Shiller flaws, in fact.

The first flaw is the index’s limited sample set. Wikipedia lists 3,100+ municipalities nationwide and we can be certain that real estate is bought and sold in all of them. The Case-Shiller Index, however, measures just 20 of them. That’s less than 1% of all U.S. cities. And then, within those tracked cities, Case-Shiller reports an average, lumping disparate neighborhoods and streets into one big number.

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Why You Shouldn’t Put Too Much Faith In October’s Case-Shiller Index

Filed under Case-Shiller Index by on December 30, 2010 at 7:47 am {no comments}

Case-Shiller October 2010

The 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 report. 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 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.

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September’s Case-Shiller Index Reflects A Slowing Housing Market

Filed under Case-Shiller Index by on December 1, 2010 at 7:46 am {no comments}

Case-Shiller Change In Home Values September 2009-2010

Standard & Poors released the September Tuesday. The is a home-value tracker. The report shows 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 Chicago 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 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.

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    Case-Shiller Shows Slowing Growth In Home Prices… Two Months Ago

    Filed under Case-Shiller Index by on September 29, 2010 at 7:47 am {no comments}

    Case-Shiller Change In Home Values June-July 2010

    For the 17th straight month, the 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 Oak Park. 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.

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    Case-Shiller Posts 16th Straight Month Of Home Price Improvement

    Filed under Case-Shiller Index by on September 1, 2010 at 7:46 am {no comments}

    Case-Shiller Change In Home Values May-June 2010

    According to the Standard & Poors , home values rose 5 percent in June versus the month prior, and 4 percent from a year earlier.  It’s the 16th consecutive month in which Case-Shiller reported an increase in and the third straight month of outstanding results.

    That said, homeowners and home buyers in Chicago would do well to temper Case-Shiller enthusiasm. The June figures are issued on 60-day delay and, over the last 60 days, data has been lackluster at best.

    Stories like these highlight a key weakness of the Case-Shiller Index — it’s out of date as soon as it’s published. Because of this, the Case-Shiller Index relevance to everyday Americans is muted. People don’t buy homes in the “60 days ago” real estate market, after all.

    June is ancient real estate history to buyers and sellers in Wicker Park.

    However, the Case-Shiller Index does have its place. As the most widely-followed, private-sector housing tracker, the index is used to help make policy decisions and to shape Wall Street’s expectations of the economy. This means that a strong Case-Shiller reading can cause mortgage rates to rise, and a weak Case-Shiller reading can cause rates to fall.

    Tuesday, mortgage rates fell.

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    The Headlines Were Overly Rosy On February’s Case-Shiller Index

    Filed under Case-Shiller Index by on April 30, 2010 at 7:47 am {no comments}

    Case-Shiller Change In Home Values Jan-Feb 2010

    Earlier this week, Standard & Poors released its February , a home price tracker for select metropolitan areas. 

    Overwhelmingly, fell in the 20 markets tracked by the Case-Shiller. Only San Diego showed a modest increase.  The other 19 markets averaged a 1.23 percent decline between January and February.

    However, that’s not the story you read in the most papers. Instead, headlines read that home values were up in the United States, citing annualized data.

    Unfortunately for active home buyers and sellers, year-over-year data isn’t all that helpful when making a real estate decisions. It’s the month-to-month data that matters. Month-to-month changes in are what defines a market. Month-to-month is what sets the tone for contracts and negotiations on a purchase.

    The rosier, annualized data published this past week just doesn’t capture the reality of what was the February 2010 market.  And even then, the data is somewhat useless because it’s from February and May will be upon us next week.

    Case-Shiller is on a 2-month lag — hardly reflective of the “right now” of real estate in Oak Park.

    When you’re looking for real estate data that actionable, consider using sources that are more “real-time”. A real estate agent may be the right place to start.  Because for all the data that Case-Shiller and the other housing indices collect, it can never be as relevant to your individual needs as a well-executed, timely market analysis.

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    Battered Housing Market Is Recovering

    Filed under Case-Shiller Index by on February 24, 2010 at 7:47 am {no comments}

    The was released on Tuesday.  It revealed only a 2.5% drop in , significantly better than the 8.7% drop reported after 2009 Q3.

    According to Case-Shiller representatives, we’re seeing a healthier market than one year ago.  We’re also seeing that the market is returning to a normal healthy rate of recovery after last summer’s incredibly hot market.

    Of note, 5 markets didn’t decline:  Detroit, Los Angeles, Las Vegas, Phoenix and San Diego.

    They were the hardest hit in the beginning and are now showing the first signs of strength as the market returns.

    The Case-Shiller Index isn’t without flaws.  For example:

    1. The data is two months old
    2. It is only 20 cities
    3. Real estate is local, not national

    Still, the index carries weight as the broadest private-sector index out there.  is key to the economic recovery and we’re seeing good signs in .

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