Found my own answer. Here's a snip from an article by Rich Toscano: ************************ Yale professor Robert "Irrational Exuberance" Shiller and his colleague, Wellesley professor Karl Case, have taken an even bigger step in the right direction with a house price measurement they recently developed. The Case-Shiller Home Price Index (HPI) measures market price changes based on repeat sales of individual homes. A given home sale price, in other words, is only compared with the price at which that very same home last sold. By gathering enough of these same-home comparisons, the Case-Shiller HPI can model the price movements for an overall market without being affected either by changes in who's doing the buying or changes in the quality of homes they are getting for the money. The Case-Shiller HPI even attempts to account for home improvements. If a certain home has changed in price more than other comparable homes, Case and Shiller assume that some of the price change was due to a property-specific factor, not market conditions, and that particular home is given a lower weight in their calculations. The problem with this approach is that if a whole lot of homeowners are making improvements (see late 2004/early 2005), then that will seem like the norm, and owners who aren't making improvements will be given a lower weighting. The HPI calculations in this case would mistake widespread home improvements for an increase in market-wide pricing power. The HPI has similar problems with the effect of concessions and the resulting inaccuracy in recorded purchase prices. A home sale with a concession that is way out of line with what's happening in the market will be given a lower weight. But if a majority of sellers are granting concessions -- and this could very well be the case right now -- then home sales without concessions will be given a lower weight instead. Like the other home price measures, the HPI probably has a tendency to overstate home prices during a buyers' market (like today, when concessions are frequent) and to understate home prices during a sellers' market (like the panic-buying days of 2003-04, when concession demanders were shown the door). The treatment of improvements and concessions may be problematic, but the HPI's focus on same-home sales solves some of the problems afflicting the size-adjusted median and even more suffered by the plain-vanilla median. It only measures movements in single-family homes, not condos, but that's a tolerable tradeoff to get a more accurate price indicator. Unfortunately, the HPI numbers for a given month don't become available until almost two months later, which is why I've stuck to the more timely size-adjusted median for the monthly updates. We need all the analytical help we can get, however, so from here on out I will add the Case-Shiller HPI to the list of items we follow at the Nerd's Eye View. Rich Toscano hosts the blog "A Nerd's Eye View" about housing and economic issues in San Diego. You can e-mail him at rich.toscano@voiceofsandiego.org or send a letter.
What a shitty chart. They say inflation adjusted, but not USD adjusted. It doesn't even mention how little today's dollar is worth. I hope no one paid for that thing.... Regards,
Smart, thanks for posting the answer. I was looking for a link to respond because I had the same question some time ago and reconciled the answer to my satisfaction (that it was accounted for) but not sure as to how.
Sorry..correct...I meant that we are at the beginning stages of a prolonged period of fall real estate on a NATIONAL level.. Can you find a time when National Real Estate prices fell for say, 3 years in a row??
Your statement is about as dumb as stating interest rates aren't included in the price of home for the index. You do realzie they attempted to deflate the dollar using real values as opposed to nominal values? Hence, an index with a value (not dollar)range from 60-200...
The chart is actually misleading. It does not take into an account the suburbian evolution of housing. The price of the housing is now determined more by the type of neighborhood it's located. Roughly 'guesstimating', the neighborhood of 200k homes will be populated by households with an average annual income of 70k (200/30). Since the absolute majority of housing is mortgaged it can be considered as an income producing asset for the mortgage holders, while the homeowners are really paying the 'rent' to the mortgageholders. So, basically, we are talking about the fact that 200k average home value is simply the reflection of the average household income and buying power. If it was not for the mortgage industry, the future homeowners would have to save to buy houses outright and the housing prices would be a reflection of an average saving capacity over the period of X years, with X being an average number of years it would take to save for a house.
NATIONAL level trends are meaningless as they simply reflect an average buying power of homeowners. Local markets operate strictly on demand/supply basis: limited inventory with influx or outflux dominating the respective price ranges. Do not forget the fact that house can not be sold at a loss to an owner. Therefore when upside down on a mortgage the owner will hold until able to sell at least at break even.
June 24, 2008, 1:00 pm Housing Prices Rally? I am a contrarian by nature. These days that requires me to look for good economic news. And there is some of that in the Standard & Poorâs/Case-Shiller house price indexes released today. Of course, there are other indications that things are getting worse, but finding any ray of sunlight is an accomplishment. Unfortunately, I could find no good news in the Conference Board Consumer Confidence index, also released today. Hereâs the good news I did find: The Case-Shiller indexes say that home prices rose in April (the newest month available) in 8 of the 20 markets monitored by the indexes. If that doesnât sound like much, you havenât been following the data. For six months, beginning in September, every market declined. Then in March, two rose. Here are the eight winners for the month: Cleveland up 2.9% Dallas up 1.1% Denver up 0.8% Seattle up 0.7% Portland up 0.3% Charlotte up 0.2% Boston up 0.1% Chicago up 0.1% That Cleveland move looks a little strange, coming after eight straight falling months, but maybe the spring selling season there was a decent one. That market has the advantage that prices never soared, so perhaps they have a smaller distance to fall. Unfortunately, what a lot of people will notice is that this is the first month ever for the indexes that every market was down on a 12-month basis. Charlotte had been the holdout, and even though its prices rose in April, the increase was less than the previous April, so the annual figure is down by 0.1 percent. More amazing is that, rounded to the nearest full percentage point, eight of the markets have lost a quarter of their value from the peak prices, mostly reached in the summer of 2006, and a ninth has lost a fifth. When I (along with some Times colleagues) talked to officials from Standard & Poorâs a few weeks ago, they said that in rating all those sub-prime mortgage securities that have since blown up, they had stress-tested the securities based on an assumption that home prices could fall as much as 5 percent. As it happens, only one of the 20 markets â Charlotte â has not fallen that far. Here are the 20 markets, from peak through April. Also listed is the last time before 2008 that indexes in each city were lower than Aprilâs level. One way to look at that is that the average homebuyer who bought in the month shown for each market still had a profit on the investment if they sold in April. Las Vegas -29%, March 2004 Phoenix -29%, Feb. 2005 Miami -29%, Nov. 2004 San Diego -28%, Oct. 2003 Detroit -26%, April 1999 Los Angeles -26%, May 2004 Tampa -25%, Jan. 2005 San Francisco -25%, March 2004 Washington -20%, Oct. 2004 Minneapolis -19%, March 2003 Boston -13%, Jan. 2004 Cleveland -11%, June 2004 Chicago -11%, Jan. 2005 New York -10%, March 2005 Atlanta -9%, Jan. 2005 Denver -8%, April 2004 Seattle -7%, June 2006 Portland -6%, April 2006 Dallas -5%, June 2005 Charlotte -3%, March 2007 That means most markets are back to 2004 prices, or farther. Those 20 percent-plus declines now mean that there are homeowners who put 20 percent down who may owe more than their home is now worth. Those who got 100 percent loan-to-value loans, or who had negative amortization loans, may reasonably conclude they will never be even, and follow the advice of that noted sage, Paul Simon: Just drop off the keys, Lee and set yourself free. Meanwhile, the consumer confidence survey finds that the proportion of people planning to buy a home in the next six months was 2.2 percent in June. That is the lowest since September 1982, when recession and high interest rates had destroyed the home market. If it is any consolation to the home builders, they donât have the only businesses that donât look good. Plans to buy cars are also close to historic lows, and plans to take a driving vacation are also lower than ever. Looking out six months, more people are pessimistic about the outlook for jobs and business conditions than at any time since 1980. And more people think their own income will fall than at any time since the Conference Board started asking that question in 1967. http://norris.blogs.nytimes.com/