By: Dennis Norman
If you live in Los Angeles California or Orlando Florida, then the answer unfortunately is yes. However if you live in St. Louis Missouri, Louisville Kentucky, Boston Massachusetts, Houston Texas, Greenville South Carolina or any of dozens of metropolitan areas around the country the answer is no. So why then, for the past 2 days has the media been reporting home prices in the US have dropped 18% in the past year and blogs been littered with posts about it?
The reason is the S&P/Case-Shiller housing report was released December 30th and hundreds, if not thousands, of newspapers, television stations and blogs report on it and most the headlines mention quotes the report that home price dropped 18% from October 2007 to October 2008. So why am I saying this is not accurate? I’m not, exactly. What I’m saying is wrong is the PERCEPTION to the public. Many consumers don’t get past the headlines or don’t pick up on the fact that the S&P/Case-Shiller housing report covers only 20 metropolitan areas in the United States so the report is not necessarily indicative of the real US market. In fact the selected cities appear to be heavily weighted to coastal and other volatile markets such as Los Angeles, Las Vegas, New York City, Miami and San Diego to name a few. Four of the cities covered appeared in the recent top ten list of the worst real estate markets published by Fortune magazine.
In addition the S&P/Case-Shiller housing report uses a 3 month running average of “paired sales” to compile their data. I’ll admit that I have not been able to find a lot of specifics on the data used but nonetheless it seems somewhat limited. Reading from the report published by Standard and Poors detailing the methodology of their reports it states “their (the reports) is to measure the average change in home prices in a particular geographic market.” Clearly the report is not intended, nor promoted as, a report on national, or even regional, home values, however with all the attention and reporting I think many consumers probably take it to be just that.
A better indicator of the overall real estate market on a national level, I believe, is the National Association of REALTORS(R) (NAR) existing home sales reports and the metropolitan area prices report. These reports are based upon MLS (Multiple Listing Service) data on actual home sales that have closed in over 150 metropolitan areas throughout the United States. The NAR reports for the same period as the Case-Shiller reports show a decline of 11% instead of 18% or almost 40% less. Granted, homes losing value at any rate is not good news, but 11% certainly sounds better than 18%.
While even the information from the National Association of REALTORS(R) does not cover all markets I think it is a much more accurate representation of the market. I am not sure why the media (and bloggers for that matter) don’t look to them more as a source for housing data rather than put so much emphasis on the S&P/Case-Shiller housing report which is, in my opinion, so narrowly focused.
Keep in mind, all real estate is local. Your local market may be much better, or worse, then national averages that are being reported and it is important to realize that.
As we enter 2009 I wish you a happy, healthy and prosperous 2009!
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