Case-Shiller Index: 3 Reasons to Blow It Off
Nobody really knows what to make of all the contradictory statistics and reports about home sales and prices that are released every few nanoseconds, but the Standard & Poor's Case-Shiller index -- like the one this week that said home prices saw a puny 1 percent uptick from April 2011 -- is the one that always grabs the public's solemn attention and causes that kick-in-the-gut feeling.
Here are three reasons why the report is pretty meaningless to a homeowner:
1. Case-Shiller pretends to be a national index.
Yet nationally, there are more than 3,100 municipalities, of which Case-Shiller tracks just 20. And they aren't even the biggest cities. Real estate is highly localized. Prices in those 20 cities might have ticked up just 1 percent, but in your neighborhood, it could have been more -- or less. You won't know until you check your very specific neighborhood comparable sales.
2. Case-Shiller only considers single-family, detached homes.
Uh, what about those of us who live in condos? In multi-family homes? What about new construction? Nope, all invisible to Messrs. Case and Shiller.
Dan Green, who blogs for The Mortgage Reports, notes that in a market like Chicago, these excluded homes actually outnumber the included ones. So if you live in Chicago, you can presumably ignore the market-chilling results of this latest release.
For the rest of us, the numbers are equally meaningless. As a buyer or seller in the new-homes market, you need to know what's happening with new homes; ditto for condo shoppers.
3. Timing is everything.
The Case-Shiller index takes 60 days to release its data, so it essentially is reporting on where the housing market was two months ago. Frankly, in this rapidly changing market, two-month-old information is worthless to buyers and sellers.
The sale of a home on your street last week, which is what the bank's appraiser will be looking at, holds far more importance than the price someone else got two months ago.
The only value we glean from the Gospel of Case-Shiller is that their reports have consistently studied the same markets since 1987, which allows them to provide an interesting comparative analysis over time. Their methodology is unimpeachable in this regard. But current homebuyers and sellers shouldn't get their britches tied in knots over reports based on narrow, incomplete and out-of-date information.
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