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Report Shows Uneven Recovery For U.S. Housing

29 Mar

Case-Shiller Home Value Changes

Recent data suggests that the U.S. housing market is in recovery. However, the data also shows this to be an uneven recovery.

According to the monthly S&P/Case-Shiller Index, for example, home values rose in three of 20 tracked markets between December 2011 and January 2012. 17 tracked markets showed home prices still in decline. Unfortunately, Sacramento is not one of the 20 markets tracked, but you can gleam a general trend from this report.

It’s easy to point to the Case-Shiller Index as evidence that the housing market in California has yet to bottom, but we have to consider the Case-Shiller Index’s shortcomings — specifically in a recovering economy.

For example, the Case-Shiller Index is based on changes in home prices of a single home, through successive sales. This means that to calculate its home price index, the Case-Shiller searches for sales of the same home over a period of time and calculates the difference in contract price.

This methodology can distort the home price tracker downward during times of weak economy because there is no distinction made for homes sold in foreclosure or as a short sale.

35% of all homes sold in January were “distressed”, says the National Association of REALTORS®.

Another distortion in the Case-Shiller Index is that the model neglects all home types that are not of type “single-family residence”. This means that multi-unit homes and condominiums are excluded from the Case-Shiller Index model.

In some markets, such as Chicago and New York City, condominiums account for a large percentage of overall sales.

Lastly, the Case-Shiller Index is published with a “lag”, which renders it useless to buyers and sellers of Sacramento in search of real-time, relevant data. The most recent Case-Shiller Index is published with a 60-day delay, and accounts for home purchase contracts written between October and December 2011.

Since October, the U.S. economy has added more than 1 million jobs and the economy has moved into “moderate expansion”, according to the Federal Reserve. Data that’s two seasons old does little to help us today.

Making sound real estate decisions is about having timely, relevant data at-hand when it’s needed. The Case-Shiller Index fails in that respect. It’s good for highlighting the U.S. housing market on the whole, as it existed in the past. For real-time market data, though, you’ll want to talk with an active real estate agent. Let me know if you need a good referral for a seasoned real estate agent, I happen to know a few.

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2 Comments

Posted by on March 29, 2012 in Housing Analysis

 

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2 responses to “Report Shows Uneven Recovery For U.S. Housing

  1. Ty Johnson

    April 17, 2012 at 8:35 pm

    “35% of homes sold were distressed” …. nationwide. In Sacramento the number is just under 60% distressed sales.
    Two thirds of any type of sale is going to affect the pricing of the overall market. Separating out distressed and non distressed properties is disingenuous when distressed makes up a vastly greater portion of the over all market.

     
    • Dan Tharp

      April 17, 2012 at 10:53 pm

      Thanks Ty,

      I appreciate the comment. I agree wholeheartedly with your comment. This is why, in my opinion, the “Case-Shiller Index fails in that respect. It’s good for highlighting the U.S. housing market on the whole”, and why I recommend my clients call a seasoned realtor to help them decipher these misleading statistics.

      Thanks for taking the time to read the blog and give me feedback. This is how we learn!

      All my best,

      Dan

       

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