Housing Price Update [September 26, 2012]

For the first six months of 2012, home prices increased 5.9%, according to the S&P/Case-Shiller 20-City Index. The index tracks 20 metropolitan areas and reports on a two-month delay. The index was among the first to use repeat sales as its methodology—measuring prices of the same homes that have two or more recorded sales. Home sale pairs are accumulated in rolling three-month periods to keep sample sizes large enough.

 

Before Case-Shiller, the most widely watched home-price measure was from the National Association of Realtors (NAR). NAR uses a median sales price for thousands of different types of homes in hundreds of locations that sell in a given period. Median prices can be skewed when there is a shift in the “mix” of what is selling: the number can turn higher in months where more expensive homes are sold, revealing little about the direction of prices.

 

CoreLogic Inc. and the Federal Housing Finance Agency (FHFA) also use repeat-sales measures. CoreLogic covers transactions in ~ 80% of the country, a wider scope than Case-Shiller’s. The FHFA index is based on the sales of homes which Fannie Mae and Freddie Mac guarantee or purchase the loan. As a result, it does not track more expensive homes. The FHFA index is unit-weighted, meaning all sales count equally. Case-Shiller is value-weighted, giving greater emphasis to more expensive properties; high-cost markets such as New York and Los Angeles have an outsize effect.

 

The FHFA index shows prices rose 34% from 2003 to 2007; prices are now ~ 16% below their peak. Case-Shiller shows a 52% gain from 2003 until peaking in mid-2006; prices are still ~30% of their peak (as of September 2012).