Looking For Housing Deals? Then Look Beyond Case Shiller Price Data (part 2)


This chart shows housing bumping along the bottom. But is that true where you live?

The chart is from Tuesday’s January Case Shiller home price report that showed home prices across 20 “cities” were down 0.8% in January, down 3.8% year-over-year through January, and down 34.4% from 2006 peak levels. To be clear: this is only single family home prices. New construction, condo, co-ops/apartments, TICs, and multi-family dwellings are excluded.

These national numbers prompt all the “Home Prices Trying To Find Bottom” headlines, and this mood is perpetuated by the table below showing that 16 of 20 ‘cities’ Case Shiller tracks declined in January.

But they’re not cities.

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 about 12% of the single family home inventory in the “San Francisco” figures noted below.

The five counties—Alameda, Contra Costa, Marin, San Francisco, and San Mateo—span about 40×70 miles on the map below.

San Francisco itself is only 7×7 miles. It’s divided into 10 districts. See the maps below showing the entire city and a sample of District 5 in the middle of the city.

Then the 10 districts are divided into 86 sub-districts, which are the neighborhoods. Below is a sample from my SF real estate map: it’s Haight Ashbury, a neighborhood in District 5.

The point of all this is that once you get down to street level, there’s almost no comparison to the Case Shiller “City” home pricing that dominates mainstream media headlines.

Even a subset of Case Shiller pricing called the High-Tier Price Index isn’t really relevant. San Francisco real estate veteran and market analyst Patrick Carlisle points out:

The high-tier for the 5 counties—i.e. the top third of sales—in January started at $550,000. That is not “high tier” for the city; in fact, it would probably be somewhere in the top of the lower third of sales for the city generally, and if we didn’t count the less affluent southern districts of SF, it would be deep in the lower third of sales.

So if you’re shopping for a home properly, you start with national price reports like Case Shiller and CoreLogic to get a broad feel.

Then you dive down from national to local level as pictures above show.

And below I run down the rest with help from one of my ace realtors Helena Zaludova.

This uses San Francisco for pricing examples, but the methodologies are the same city to city.

First you focus on neighborhood: Most cities will have district specific maps like this so you can drill down to sub-district (aka neighborhood) that will have an overall price point.

Next you focus on neighborhood lifestyle: Proximity to amenities like parks, restaurants, transportation, and schools (though schools are not as important in SF because our public school system isn’t based on districts).

Next you focus on streets and specific blocks: proximity to traffic, noise, trees, views, one-way vs. two way streets, two-lane vs. four-lane streets, cul-de-sacs, etc.

EXAMPLE 1 of how this street-level pricing differs: you could find a home you love on one street in San Francisco, and two blocks up the hill in the same neighborhood could be a model match (meaning the exact same style/age/quality/size home) with views. You’ll pay at least $100-per-square-foot more for that view home.

EXAMPLE 2 of how this street-level pricing differs: in SF, Pacific Heights is separated from another neighborhood, Western Addition, by 5 city blocks. The average price-per-square foot is $800 in Pac Heights vs. $450 for Western Addition —a whopping 78% value difference within a 6 block area (much less a 5 county area of approximately 2000 square miles).

Next comes new or remodeled homes: So your average single family home in Pacific Heights is $800 per square foot, but you’ll pay up to 50% more than that if it’s remodeled, or more if it has views (see note on views above).

Next comes parking (in San Francisco anyway!): if condo, pricing differs between deeded vs. leased vs. no parking. If single family home, pricing differs between tandem vs. side-by-side vs. carport. The first parking space typically adds about 10% to the value of a house or condo. For condos, you can usually buy another parking space for $30-50k. So for a house in Pacific Heights or a luxury condo in a 2-4 unit building (without additional parking available in the building), parking can easily mean a difference in value of $150,000 to $300,000.

And you keep doing this for each property characteristic that you want/need.

If you do this in San Francisco, here’s the inventory you’ll end up with:

– if large condo projects are target, you’ll get 15-20 options

– if small condo projects are target, you’ll get as few as 5 options

– if single family homes are target, you’ll get as few as 5 options

If you want to buy one of these homes, you derive your offer price based on prices of recently sold comparable homes nearby.

Not all homes compare exactly, so you add and subtract pricing based on the characteristics discussed above.

You also do this with currently listed comparable homes nearby.

You’ll do it with 3-5 recently sold homes and 2-4 listed homes.

CRITICAL: This is the exact same process appraisers use when assessing home value. (Part 3 of this series will be on appraisals)

So you do all of this, write and offer, get into contract, and close 30 days later.

That settlement price goes on public record, and that’s what Case Shiller mines for prices (remember: single family homes only).

And Case Shiller uses a three month average of prices. Example: Tuesday’s Case Shiller report for January represents a three month average of November, December and January.

It takes 30-60 days to close home purchase deals, so that sample includes pricing back to September.

So any “current” Case Shiller report largely reflects market pricing as of 5-6 months earlier.

All of this is long way of reiterating the old axiom “all real estate is local.”

But hopefully it helps you understand how to interpret home price headlines.

And I know for sure that undervalued homes are unearthed daily using this process.

Thanks to my friends Helena and Patrick for their help on this.

I’ll do Part 3 in this series shortly. That piece will take a close look at appraisals.
Case Shiller January Home Price Report
Case Shiller methodology

Further Reference:
Current data/trends on: existing sales | pending sales | new sales | home prices




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