No Joke: Home Prices Rising, Some Indexes Say

Amid glimmers of a housing recovery, home prices continue to cast a pall over the real estate market.

Even with a rise in home sales and new construction, traditional indexes tell us that home prices continue to slide, suggesting that the housing market still hasn't truly hit bottom. But other evidence suggests the opposite.

At least two indices designed to provide a more up-to-date picture of home prices than traditional indices show that home prices have actually increased over the last three months.

Home prices reached a post-housing-bust nadir in January, according to the Trulia Price Monitor, but rose by 1.4 percent in the first quarter of 2012. The Burns Home Value Index found a similar uptick, with prices increasing 1.1 percent from January to March.

The indices' findings seem to validate the direction of other market bellwethers that have painted a rosier picture of the housing market in recent months. The positive signs include bumps in construction starts, home sales and confidence among real estate professionals.

"Builders build when they expect prices are going to rise" and, according to the Trulia Price Monitor, they seem to have been on the mark with that forecast, Trulia's chief economist, Jed Kolko, says.

Wayne Yamano, vice president of John Burns Real Estate Consulting, which created the Burns Home Value Index, told DSNews.com that his company's price index also shows that "the slow housing market recovery is underway," though he cautioned that prices could drop below January lows again.

So how is it that these indices' findings appear to fly in the face of those of their more prestigious peers? The reason is that traditional home-price indices reflect months-old price movements, not real-time ones.

That's because they track sales prices, which aren't established until about two months after homebuyers and sellers sign home-purchase contracts.

On top of the two-month lag, traditional indices, which include the FHFA Price Index, S&P/Case-Shiller Index and the CoreLogic Home Price Index, take at least four weeks to report sales prices after home-sales data become available. That means that traditional indices usually capture price trends in the market that occurred three or more months before.

The Trulia Price Monitor and Burns Home Value indices, the first of which is brand new, attempt to gauge real-time price trends by using home prices set at or prior to the beginning of home purchase transactions, not at their conclusion.

Trulia, which is a real estate information and listings service website, leverages its database of listings to accomplish this goal by, first, tracking the most-recent asking prices on listed properties. It then adjusts those prices for changes in the mix of properties, in order to show price trends for similar homes in similar neighborhoods.

The Burns Home Value Index also claims to calculate month-over-month home-price movements by crunching data on the prices of homes when they enter into contract. According to DSNews.com, that entails using MLS, another listing service, as well as other market indicators. The metric also uses an 'electronic appraisal' of every home in the market, "rather than just the small sample of homes that are actually transacting," vice president of John Burns Real Estate Consulting, Wayne Yamano, told DSNews.com.

Such indices are the "best chance we have to understand what's going on in the market right now," Kolko says. But he added that traditional indices remain valuable. "Historically, sales index prices are the best guide," he says, because many homes that enter into contract do not always end in a sale. In fact, contingencies written into contracts have sunk a higher percentage of home deals in recent years than in the previous housing era.

The discrepancy between contract signings and closings is one reason why legacy indices may show different price movements when they eventually do reflect market conditions of the first quarter of 2012, which the newer indices have already hit on.

"Keep in mind, they're not closing yet," Sam Khater says of home-sale contract signings. "They could fall out for a number of reasons." Khater is senior economist at CoreLogic, which releases a legacy index, the CoreLogic Home Price Index.

The CoreLogic Home Price index recently showed a 0.8 month-over-month decrease in February 2012, which more or less reflects a decrease in asking prices that occurred around December.

Foreclosure sales also could impact the accuracy of the new-generation indexes, according to Sam Khater. "A majority of REOs are unlisted," Khater says. "Sometimes they [banks] auction them; sometimes they sell in bulk" to investors. Sales of REOS, which are foreclosed homes usually owned by banks, typically sell at below-market prices to buyers who pay in cash.

But Kolko says that the Trulia Price Monitor actually is able to factor in foreclosure sales activity by using data from Realtytrac.com, an online foreclosure marketplace. John Burns Real Estate Consulting could not be reached for comment on their approach to accounting for REO sales.

Khater says that it's quite plausible that the indices are on point, and that home prices genuinely are increasing. "The fact that it's up over the last quarter doesn't surprise me," he says.

But even if traditional indices do confirm the price appreciation found by the Trulia Price Monitor and Burns Home Value Index, which Kolko says he expects to happen in July data releases, many experts say the market is by no means healthy.

An expected foreclosure flood may or may not drive down prices, once major mortgage servicers -- who recently reached a deal with state attorneys general over foreclosure abuses -- implement the foreclosure practices stipulated in the settlement.

Khater says CoreLogic expects home prices to eventually fall below January levels by another 3 to 4 percent, reaching the final housing crisis trough in late 2012 or early 2013.

"I think we're not far from the bottom," he says, but adds that "the more important question is what happens at the bottom."

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