Housing Giants - February 15, 2009 - (Page 6) MarKet By John Burns and Lisa Marquis Jackson, John Burns Real Estate Consulting Beware Caveats in Case-shiller indiCes Be sure to understand these popular indices before you use them. The S&P/Case-Shiller Home Price Index is one of the most commonly referenced indices available to benchmark and track the changes in U.S. housing prices. Although it is a valuable resource, we recommend a clear understanding of how the methodology works before relying heavily on the Case-Shiller results for critical decision making. Case-Shiller’s 10-City and 20-City Composite indices continue to report record declines, falling 19 percent and 18 percent, respectively, over the 12 months through November 2008 (the most recently available data). As of November, the 10-city index is down 27 percent from its mid-2006 peak, and the 20-city is down 25 percent. The two indices have fallen every month since August 2006, which makes 28 straight months. Home prices have returned to their March 2004 levels, according to this index. Clearly, foreclosures are having an influence. It’s likely that the CaseShiller numbers are significantly affected by foreclosure prices because bank-owned homes are included in the calculations. Even Karl Case, the co-founder of the index, told media that the high concentration of foreclosure sales in Arizona, California, Florida and Nevada, which made up 54 percent of all sales activity in these four states, was driving the aggregate index down. Today, distressed sales are one distinct type of home sale. Although foreclosures are putting significant downward pressure on the index, foreclosure sales can’t be fairly evaluated in isolation, because distressed pricing in a market also affects pricing on non-distressed sales (a second distinct type of sale). New construction is the third distinctive type of sale, and it is not figured into the index. Below are some of the methodology variables that influence the results of the Case-Shiller indices. Nuances of Filtering and Weights The Case-Shiller indices use a paired sales analysis so that sales of the same home are tracked over time. Once sales pairs are identified, they are then weighted according to: n Price anomalies — Smaller weights are applied to homes that “appear to have changed in quality, or sales that are not representative of market price trends.” High turnover frequency — Sales for the same home must be at least six months apart. Time interval adjustments — Pairs with longer intervals are given less weight. Initial home value — The weight for the pair is determined by the first sale price. n Reports Case-Shiller produces a 10-market composite index and a 20-market composite index each month. It also produces a U.S. National Home Price Index each quarter.The indices are calculated with a two-month lag. n n WHAT Is CApTURed: Single-family dwellings n Homes with 2 or more transactions n Homes with arm’s-length transactions n Bank-owned home sales n WHAT IS NOt CApTURed: n New construction Condos, multifamily dwellings or anything that can’t be classified as single-family n (roughly 10% of national home sales) 06 02.15.09 HOUSING GIANTS www.HousingGiants.com http://www.realestateconsulting.com/home.aspx http://www2.standardandpoors.com/portal/site/sp/en/us/page.category/indices/2,3,1,0,0,0,0,0,0,0,0,0,0,0,0,0.html?lid=us_fo_overview_indices http://www2.standardandpoors.com/portal/site/sp/en/us/page.category/indices/2,3,1,0,0,0,0,0,0,0,0,0,0,0,0,0.html?lid=us_fo_overview_indices http://www.HousingGiants.com
Table of Contents Feed for the Digital Edition of Housing Giants - February 15, 2009 Housing Giants - February 15, 2009 Contents Viewpoint News Market Feature Housing Giants - February 15, 2009 Housing Giants - February 15, 2009 - Housing Giants - February 15, 2009 (Page Cover1) Housing Giants - February 15, 2009 - Contents (Page 2) Housing Giants - February 15, 2009 - Viewpoint (Page 3) Housing Giants - February 15, 2009 - News (Page 4) Housing Giants - February 15, 2009 - News (Page 5) Housing Giants - February 15, 2009 - Market (Page 6) Housing Giants - February 15, 2009 - Market (Page 7) Housing Giants - February 15, 2009 - Feature (Page 8) Housing Giants - February 15, 2009 - Feature (Page 9) Housing Giants - February 15, 2009 - Feature (Page 10) Housing Giants - February 15, 2009 - Feature (Page 11) Housing Giants - February 15, 2009 - Feature (Page 12) Housing Giants - February 15, 2009 - Feature (Page 13)
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