Making Sense of Home Price Data

How to decipher the three major home-price indices, and their often conflicting conclusions.

Are housing prices up, down, or flat? It all depends on who you ask.

The S&P/Case Shiller Home Price Indices reported last week that for the three months ending in August, home prices increased by 0.2% compared to July. Meanwhile, the Federal Housing Finance Agency, a government housing regulator, announced that home prices dropped 0.1% in August. And data from the National Association of Realtors on August sales now shows that the median sales price of existing homes was about flat in August compared to July. Yes, the differences are small, and it’s been the case for years that each group’s data differs even within the same metro area. But experts say that with the housing market facing the possibility of a double dip, sellers and buyers are more baffled than ever by these discrepancies. “For the average buyer, it’s absolutely confusing,” says Leonard Baron, principal at LPB Services, a real estate consulting firm in San Diego, Calif.

In addition, for many buyers and sellers, it’s hard to know how much these figures matter at all. Because real estate is so local and home prices can change every few miles, homeowners and potential buyers should focus on trends in their specific neighborhoods, says Baron. That means consulting a realtor who can pull up prices of similar homes that sold over the past few months.

That’s not to say these indices aren’t helpful. They can provide useful benchmarks, but it’s important to understand how the figures are calculated, experts say, as each index measures home prices in a different way. The National Association of Realtors tracks existing homes that sell each month, while the FHFA and the S&P/Case-Shiller look at repeat sales, meaning the price a home just sold for compared to what that same home fetched the last time it sold. Separately, the scope of homes in these studies varies significantly. The NAR and S&P claim to look at nearly all types of sales, including foreclosures and regular sales as well as homes purchased with a mortgage or with all cash. Meanwhile, the FHFA strictly focuses on homes that are purchased by buyers using a mortgage that’s backed by Fannie Mae or Freddie Mac. Anything else is excluded.

How useful each index is largely depends on which housing market is being measured.

Affordable markets: For homeowners in relatively healthy and affordable markets, the FHFA index could be the way to go, says Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA. Since it excludes jumbo mortgages home loans for expensive markets and cash buyers, who tend to purchase foreclosures, the FHFA’s home price data provides clarity about how home prices are trending in “normal” markets. In addition, the FHFA data now carries more weight than it once did, since Fannie Mae and Freddie Mac mortgages account for roughly two thirds of the total market, up from just 27% in 2006, according to Inside Mortgage Finance, a trade publication.

Expensive markets: In high-priced markets in large cities, the S&P Case-Shiller is a helpful starting point, experts say. It includes homes purchased with jumbo mortgages, which is why its price data can be different from the FHFA. In addition, the S&P index offers buyers and sellers data on how higher-priced homes are performing compared to the other price points in the same city. For instance, for the past year ending August, Miami home prices have dropped 14% in the city’s lower-priced market (homes priced at under $143,061) while the more expensive homes (priced above $253,909) fell just 2%, according to S&P.

For the most local detail: If the objective is to price a home in a very specific location, Gabriel recommends the National Association of Realtors, which breaks data down by locality. While the S&P-Case Shiller tracks 20 cities, the NAR tracks up to 156. Beyond that, its associations in larger states, including California, New York and Illinois, dig even deeper, providing data (on their web site) on even more cities and towns. It should be noted that NAR data may be skewed since it represents an industry that promotes higher prices.

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