Market Update

27 May 2014

Rising home values are cooling off a bit as prices come back down to more normal levels after the big gains seen in 2013. The March Case Shiller 20-city Index rose by an annual rate of 12.4%, above the 11.8% expected, but down from the February annual rate of 12.9% and a recent peak of 13.7% in November. The Index did show a 0.9% increase in prices from February to March.

Consumers attitudes towards jobs, the economy and personal finances were more upbeat in the short term based on a recent survey from the Conference Board. The May Consumer Confidence Index rose to 83.0 from the 82.3 recorded in April and just above the 82.7 that was expected. The Index also revealed that the percentage of consumers expecting their incomes to grow over the next six months is the highest since December 2007, 20.2%.

The closely watched S&P 500 closed at a record high of 1,900 on Friday and is now up a whopping 186% from the low of 666 seen on March 9, 2009, at the height of the Great Recession. The Stock markets have been fueled by rising corporate profits, positive economic data, a comeback in housing and last but not least, support from the Federal Reserve through its QE programs. The S&P 500 is an index of 500 stocks and is designed to be a leading indicator of U.S. equities.

Case-Shiller December 2010

Last week, Standard & Poor’s released its Case-Shiller Index for December 2010. The index is a home valuation tracker, meant to meausure the change in home prices 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, home values 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 in the Blossom Hill area 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.

The “national figures” aren’t really national, and the “city data” doesn’t apply to your home, specifically.

The second Case-Shiller Index flaw is how it measures home value changes. The index only consider at “repeat sales” of the same home, so long as that home is a single-family, detached property. Condominiums, multi-family homes, and new construction are ignored in the Case-Shiller Index.

Because distressed properties account for such a high percentage of resales lately — 36% in December –foreclosures and short sales skew Case-Shiller Index worse.

And, lastly, the Case-Shiller Index is flawed by “age”. Because it reports closed sales a 60-day delay, December’s Case-Shiller Index is measuring the values of home sales contracts from September and October. The Case-Shiller Index, therefore, is a snapshot of the not-so-recent past, and does little to tell us about the next 60 days.

Overall, the Case-Shiller Index is helpful tool for economists and policy-makers, but it doesn’t do much good for individual homeowners across the city of San Jose or anywhere else. For accurate, real-time housing data in your local market, talk to a real estate professional instead.

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Case-Shiller October 2010

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 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 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.

Case-Shiller Change In Home Values September 2009-2010

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 San Jose 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.

    Case-Shiller Change In Home Values June-July 2010

    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 San Jose. 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.

    Case-Shiller Change In Home Values May-June 2010

    According to the Standard & Poors Case-Shiller Index, 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 home values and the third straight month of outstanding results.

    That said, homeowners and home buyers in San Jose would do well to temper Case-Shiller enthusiasm. The June figures are issued on 60-day delay and, over the last 60 days, housing 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 Cambrian.

    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.

    Case-Shiller Change In Home Values April-May 2010

    Standard & Poors released its Case-Shiller Index Tuesday. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked markets.  It’s the second straight month of strong Case-Shiller findings.

    Also, May’s numbers are a mirror-image of February’s. In February, 19 of 20 markets lost value.

    In its press release, the Case-Shiller staff resisted calling May’s data proof of a housing recovery, noting that home values remain flat as compared to October of last year. However, there are some noteworthy numbers in the Case-Shiller report.

    1. 13 of the 20 tracked cities are showing home price improvement year-over-year
    2. Foreclosure posterchlld San Diego has now shown 13 straight months of improvement
    3. San Diego, San Francisco and Minneapolis are showing double-digit annual growth

    These are all good signs for the housing market, but the Case-Shiller Index is not without its flaws. Most notably, the data is limited to just 20 cities nationwide — and they’re not even the 20 largest ones

    Cities like Houston, Philadelphia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.

    Another Case-Shiller flaw is that it reports on a 2-month delay.

    Therefore, today is several days from the start of August but we’re now reflecting on data from May. Given the speed at which the San Jose real estate market can change, May’s data is almost ancient.  Today’s values may be higher or lower than what Case-Shiller reports.

    For home buyers, reports like the Case-Shiller Index may not be useful in making a “Buy or Not Buy” decision, but can aid in watching longer-term trends in housing.  For real-time data, talk to a real estate agent with access to local figures instead.

    Case-Shiller Change In Home Values Mar-Apr 2010

    Standard & Poors released its Case-Shiller Index Tuesday.  The index is a monthly home valuation report from select cities and among the private sector’s most popular home pricing models.

    In reviewing the April Case-Shiller Index and its accompanying analysis, it appears that the housing market’s rebound is gathering momentum.

    In the index’s 20 tracked cities:

    • 18 of 20 improved from March to April 2010
    • Versus April 2009, home prices are up nearly 4 percent
    • The two “down” cities from April — Miami and New York — are off just 0.5% and 1.0% annually, respectively

    Furthermore, as another sign of strength, San Diego, a city in which homeowners have lost a lot of equity since 2007, has now shown 12 straight months of home price improvement.

    However, the Case-Shiller Index must be kept in context. It’s far from perfect.

    For one, the index reports on a 60-day delay; it’s only now showing data from the end of April, when the federal homebuyer tax credit was expiring. Home sales have been weak since then it’s been reported.

    And second, the Case-Shiller Index is limited to just 20 cities nationwide. Therefore, the index doesn’t consider every home sale in every American city — it only considers a select few. Many more U.S. homes are excluded from the Case-Shiller Index than are included.

    But, despite its flaws, the Case-Shiller Index remains important with respect to economic analysis. Much like the government’s Home Price Index, Case-Shiller helps to identify broader trends in housing that shape government and monetary policy.

    Case-Shiller Change In Home Values Jan-Feb 2010

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

    Overwhelmingly, home values 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 home prices are what defines a housing 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 San Jose.

    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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    Case-Shiller Monthly Change Dec 2009 - Jan 2010

    Standard & Poors released its Case-Shiller Index Wednesday. The report shows that, on a seasonally-adjusted basis, between December and January, home prices rose in more than half of the index’s tracked markets.

    The strength of this month’s Case-Shiller report, however, should be put in context.

    For one, the report is on a 2-month delay; it’s showing data from January, before the start of the Spring Buying Season and before the rush to beat the tax credit. Anecdotally, buyer interest has been strong since, leading to the types of multiple offer situations that drive home prices northward.

    In other words, home values may be even higher than what’s reflected in the January Case-Shiller data above.

    Furthermore, the Case-Shiller Index measures home values in just 20 cities nationwide and they’re not even the 20 biggest cities. Houston, Philadelphia, San Antonio and San Jose are specifically excluded from the report and each ranks among the country’s 10 most populous areas.

    Despite its flaws, though, the Case-Shiller Index remains important. Much like the government’s Home Price Index, the private-sector report helps to finger broad housing trends and housing is still considered a keystone in the U.S. economic recovery.

    Even if it’s two months slow.