Home Values Start The Year Strong
Home prices started the year on an upswing.
According to the Federal Home Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index’s assertion that home values are sinking.
Last week, Standard & Poor’s Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months.
As a home buyer or seller , data showing “rising home values” or “falling home values” may be of interest to you, but we can’t forget that most home valuation trackers — including both the government’s Home Price Index and the private sector Case-Shiller Index — have a severe, built-in flaw.
Both used “aged” data. Today, the calendar reads May. Yet, we’re still discussing February’s housing data.
Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the “right now” of housing. And, even then, characterizing the data as “two-plus months old” may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.
Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we’re really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.
Data that’s 5 months old is of little relevance to today’s buyers and sellers. Today’s market is driven by today’s economics.
The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller , though, it’s much less useful. Real-time data is what matters to you.
For that, talk to a real estate professional.
Nationally, Home Prices Off 18.3 Percent From April 2007 Peak
The government confirms what the private-sector Case-Shiller Index reported yesterday. Nationwide, average home values slipped in October.
The Federal Home Finance Agency’s Home Price Index shows home values down 0.2% on a monthly, seasonally-adjusted basis. October marks just the second time since April that home values fell month-over-month.
The Case-Shiller Index 20-City Composite showed values down 0.7 percent from September to October.
As a home buyer , it’s easy to look at these numbers and think housing markets are down. Ultimately, that may prove true. However, before we take the FHFA’s October Home Price Index at face value, we have to consider the report’s flaws.
There are three of them — and they’re glaring. As we address them, it becomes clear that the Home Price Index — like the Case-Shiller Index — is of little use to everyday buyers and sellers.
First, the FHFA Home Price Index only tracks home values for homes backed by Fannie Mae or Freddie Mac mortgages. This means that homes backed by the FHA, for example, are specifically not computed in the monthly Home Price Index.
In 2007, this was not as big of an issue as it is today. in 2007, the FHA insured just 4 percent of the housing market. Today, the FHA is estimated to have more than one-third of the overall housing market.
This means that one-third of all home sales are excluded from the HPI — a huge exclusion.
Second, the FHFA Home Price Index excludes new home sales and cash purchases, accounting for home resales backed by mortgages only. New home sales is a growing part of the market, and cash sales topped 29 percent in October 2011.
Third, the Home Price Index is on a 60-day delay. The above report is for homes that closed in October. It’s nearly January now. Market momentum is different now. Existing Home Sales and New Home Sales have been rising; homebuilder confidence is up; Housing Starts are showing strength. In addition, the Pending Home Sales Index points to a strong year-end.
The Home Price Index doesn’t capture this news. It’s reporting on expired market conditions instead.
For local, up-to-the-minute housing market data, skip past the national data. You’ll get better, more relevant facts from a local real estate agent.
Since peaking in April 2007, the FHFA’s Home Price Index is off 18.3 percent.
The Home Price Index Shows Some Regions Up, Some Regions Down
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that’s an average, of course. Some regions performed well in December as compared to November, others didn’t.
- Values in the Middle Atlantic states improved slightly
- Values in New England were essentially unchanged
- Values in the Mountain states sagged, down 3.5%
These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.
Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.
So, when you need to know whether your home is gaining or losing value, you can’t look at the national data. You have to look at your block — what’s selling and not selling — and start your valuations from there.
