THE BASIS POINT

Looking For Housing Deals? Then Look Beyond Case Shiller Price Data.

In the past few years, we’ve all heard (and said) a thousand times that housing is “bumping along the bottom.” This picture is worth all those words.

It’s a chart from yesterday’s December Case Shiller home price report that showed home prices across 20 ‘cities’ were down 1.1% in December and down 4% year-over-year through December.

The chart shows index levels for 10-City and 20-City home price composites, and both hit new record lows.

From June/July 2006 peaks through December 2011, the decline for both is -33.8%.

So is it lower from here or do these lines turn upward?

Index co-creator Robert Shiller told Bloomberg that 60% of the December decline is seasonal and might improve. But his forecast ended there.

He’s (usually) careful not to paint himself as a forecaster. Housing is local, and while the dataset that bears his name is useful as a broad indicator, he knows broad forecasts are inappropriate for individual home buyers/owners.

Here’s why: those 10 and 20 “City” composites aren’t cities, they’re regions. Also, the dataset only include sales prices for existing single family homes. New construction, condo, co-ops/apartments, TICs, and multi-family dwellings are excluded.

So for example, “San Francisco” in the table below is a five-county Bay Area region where property types and especially prices vary wildly. The actual city of San Francisco contains only 12% of the house inventory in the “San Francisco” figures noted below.

To see how many counties are in your Case Shiller “City,” go to page 8 of this Case Shiller methodology.

Think about how different pricing is across your county (or counties), let alone across neighborhood or even street to street. Then ask a local real estate pro to do some pricing analytics for you in the areas you care about. The larger your Case Shiller region, the larger your local numbers will differ from the table above.

And you will find deals.

Also remember that Case Shiller data is on a 3-4 month lag.

It takes 30-60 days to close home purchase deals, then they hit public record, and that’s what Case Shiller mines for prices. So December’s closed sales are largely reflecting market activity from October and November.

That’s not an eternity given the duration of the housing bust, but if you’re looking for current signals, you need current (and truly local) price data.

Homebuyers using Case Shiller to price a home is like investors using stock index or even sector data to price a stock. It’s one input, but local analysis is more important for property selection and offer price strategy.

I’ll cover local analytics in a ‘Part 2’ piece when January’s Case Shiller is released March 27.
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Source:
Case Shiller December Home Price Report
Case Shiller methodology

Further Reference:
Roundup Of This Week’s Key Housing Commentary