September 30, 2010
Home Price Confusion Redux (CNBC)
Here we go again on home prices.
time we get this report, we also get all kinds of questions from
viewers/readers about why some media outlets report it one way and some
So here goes:
The S&P/Case-Shiller Home Price Indices report prices in the top 10 and 20 housing markets monthly, as well as a national number quarterly. The report
offers year over year percentage gains and losses, then month to month
gains and losses, seasonally adjusted and non-seasonally adjusted.
a normal world, which we currently do not inhabit, home prices vary
month to month due to the types of buyers. Families generally buy in the
Spring, looking to move up to bigger homes and make the move over the
summer, so as not to disrupt school. Older or single buyers, also first
time buyers, tend to be the majority in the Fall; they buy smaller and
less expensive homes, thereby skewing the prices lower, just by virtue
of what they're buying.
is why I believe year over year is a much better indicator, since
you're comparing absolute apples to apples. The trouble is that in
today's world, the apples are mangled and mashed, thanks to all kinds of
government intervention in the housing/mortgage market. The Feds have
messed with taxes, mortgage interest rates and foreclosure inventories,
which in turn make the usual seasonal shifts irrelevant. That's why this
report began offering the monthly data with and without monthly
in a period where only expensive houses sell, the question is not are
the prices higher, but do the prices rise much faster than those of
Standard & Poor's
In the July report, which came out today, just looking at the 20-city composite, you see prices up 3.2 percent year over year.
is positive, but less positive than the 4.2 percent annual rise in
June. Prices rose 0.6% from June to July, 2010, without a seasonal
adjustment, and fell 0.1 percent with a seasonal adjustment.
Pick your poison.
add to the mess, this report is really a 3-month running average of
home prices, so it's not just July, which means the now-expired home
buyer tax credit is still factored in from May and June.
reader asks an important question: "Wouldn't the average price of home
sales rise no matter how many homes sold as long as they were higher
priced homes selling instead of starter homes? Are high volume resale
markets of Las Vegas, Orange County, South Florida, and Phoenix
shrinking and contributing less to the final figures?"
from S&P's David Blitzer: "No, not in a repeat sales index done the
way S&P/Case-Shiller is done. A repeat sales index looks at all
sales of all houses and calculates the annual rate of change for each
house from the last sale to the current sale and then averages the rates
of change. So in a period where only expensive houses sell, the
question is not are the prices higher, but do the prices rise much
faster than those of inexpensive houses? Our data show that in the boom
it was the inexpensive houses which saw prices sky rocket, probably
powered by sub-prime mortgages.
The effect you are concerned about does occur in an index based on the median price.
In that kind of index, if only expensive houses sell, prices will rise because there are fewer cheap houses in the mix.
The index published by the National Association of Realtors is a median price index.
The advantage is that much simpler calculation."