The latest housing price index numbers from the S&P/Case-Shiller Index were bad. But no one has quite recognized that the index is at its lowest point post-bubble. The S&P/Case-Shiller Index reflects differences in repeat sale prices on the same property. That means it doesn't account for inflation. If one adjusts the S&P/Case-Shiller Index for inflation (I used the CPI for All Urban Consumers, as S&P/C-S is an metro area price index), you'll see that the January 2011 numbers (there's a 3-month lag) were slightly lower than the previous post-bubble low in June 2009. On an inflation-adjusted basis, we're back to where prices were in January 2002.
Now while it might make sense to look at housing prices on an inflation-adjusted basis for examining trends over time, inflation does have a major impact on debt burdens and ultimately on whether homes are underwater. Inflation–the debtor's friend and the creditor's foe.
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5 responses to “Housing Prices–It’s Worse than It Looks”
if Case-Shiller Index reflects differences in repeat sale prices on the same property, then prices should fall over time as that property depreciates…
@ris
S&P tries to adjust for homes that are flipped or have a long time between first and second sales (depreciate):
“High Turnover Frequency. Data related to homes that sell more than once within six months are excluded from the calculation of any indices. Historical and statistical data indicate that sales made within a short interval often indicate that one of the transactions 1) is not arms-length, 2) precedes or follows the redevelopment of a property, or 3) is a fraudulent transaction.
Time Interval Adjustments. Sales pairs are also weighted based on the time interval between the first and second sales. If a sales pair interval is longer, then it is more likely that a house may have experienced physical changes. Sales pairs with longer intervals are, therefore, given less weight than sales pairs with shorter interval.”
The S&P Case Shiller housing data is, and has been, off by a factor approaching 100%… it NOW wakes up and states that in excess of 23% of all homes in the US are under water… not bad until you understand that “in excess of 23%” is over 22,000,000 homes!
Like an equally “flawed” (very generous) Zillow, using a computer data base it has zero capability to accurately determine values and trends… In doing so, and closing loans without any appraisal’s, Fannie Mae found that out all to well!
The ONLY answer to the current crisis is a stabilized real estate market… prices may very well come down… but in a stabilized market, not this now three year old free fall, these reductions will not have the dramatic impact that we are experiencing…
Insofar as the note holders have refused to cooperate in the only answer, loan modification and are part of the problem the time, has come for congress to order Cram Down…
U only compare the index past few more years but in the index, its clear that 2001 to 2005 the housing price is increased. I think one more reson for decreasing price and that is Gov. tax.
It hasn’t been widely covered, but the NAR data likely overstates the monthly sales rate by as much as 20 percent. That means the rue inventory number is much higher than the NAR says it is. Corelogic says its more like 17 months – not 8.6 months. And that implies something like another 20 percent drop in prices.
Flawed housing data might mask depth of woes
Critics say Realtors’ monthly report overly optimistic
http://www.msnbc.msn.com/id/42258117/ns/business-eye_on_the_economy/