Detroit Leads All Case-Shiller Cities In Home Price Improvement

Case-Shiller Annual Changes August 2011

The August 2011 Case-Shiller Index was released this week. On an monthly basis, 10 of 20 tracked markets worsened. On an annual basis, valuation degradation was worse.

Only Detroit and Washington, D.C. posted higher home values in August 2011 as compared to August 2010, rising 2.7% and 0.3%, respectively.

However, the index has been moving in the right direction. Since bottoming out in March of this year, the Case-Shiller Index is up nearly 4 percent.

As home buyers and sellers , though, we have to remember that the Case-Shiller Index is a flawed product; its methodology too narrow to be the final word for housing markets.

The Case-Shiller Index has 3 main flaws.

The first Case-Shiller Index flaw is its relatively small sample size. Although it’s positioned as a national housing index, Case-Shiller data represents just 20 cities nationwide, and they’re not even the 20 most populous U.S. cities. For example, cities like Houston (#4), Philadelphia (#5), San Antonio (#7) and San Jose (#10) are excluded from the Case-Shiller Index findings.

By contrast, Minneapolis (#48) and Tampa (#55) make the list.

A second Case-Shiller Index flaw is the way in which it measures home price changes. The Case-Shiller Index formula ignores all home sales except for “repeat sales” of the same home. New homes don’t count for the Case-Shiller Index. Furthermore, the index ignores condominium and multi-family home sales, too. 

In some cities, condos can account for a large percentage of sales.

And the third Case-Shiller Index flaw is that the data is reported on a 2-month lag. Next week marks the start of November, yet we’re still discussing data from August. A lot can change in two months (and it often does). Today’s market conditions are similar to — but not the same as — market conditions from before Labor Day.

The Case-Shiller Index is far from “real-time”.

As a monthly release, the Case-Shiller Index does more to help people with a long-term view of housing, including politicians and economists, than it does for everyday buyers and sellers who negotiate prices based on current demand and supply.

A real estate agent can tell you which homes have sold in the last 7 days, and at what prices. The Case-Shiller Index cannot.

Case-Shiller Index : 85% Of Tracked Cities Showed Home Price Improvement In July

Case-Shiller monthly change (June - July 2011)

Standard & Poors released its monthly Case-Shiller Index this week. The Case-Shiller Index measures home price changes from month-to-month, and year-to-year, in 20 select U.S. cities. It also reports a “national” index; a composite of the values in said cities.

The most recent Case-Shiller Index shows a 0.9% rise in home values from June to July 2011. Home values were higher in 17 of the 20 tracked cities. Only Phoenix and Las Vegas fell. Denver was flat.

Also noteworthy is that, of all of the Case-Shiller cities, Detroit posted the strongest 1-year, home price improvement. As compared to July 2010, home values are higher by 1.2 percent in Detroit. This bests even Washington, D.C. — long-believed to be the nation’s healthiest housing market.

That said, we should be careful of the conclusions we draw from July’s Case-Shiller Index — both on a city-wide level, and on a national level. This is because, as with most “home price trackers”, the Case-Shiller Index has flaws in its methodology. 

The first Case-Shiller Index flaw is its limited scope. Although it’s purported to be a “nationa”l housing index, the data that comprises the monthly Case-Schiller Index is sourced from just 20 U.S. cities. These 20 cities represent just 0.6% of the more than 3,100 municipalities nationwide.

The second Case Shiller Index flaw is that the sample sets include single-family, detached homes only. iCondominiums, multi-unit homes, and new construction are specifically excluded from the Case-Shiller Index.

In some markets, “excluded” home types outnumber included ones.

And, lastly, the Case-Shiller Index is flawed in that it takes 2 months to gather data and report it. It’s nearly October, yet we’re still discussing the real estate market as it existing in July. For buyers and sellers , July in ancient history. 

The Case-Shiller Index is useful for tracking long-term trends in housing, but does little to help individuals with their choices to buy or sell a home. For relevant, recent real estate data, talk to a real estate agent in your market. Real estate agents are often the best source for real-time, real estate data.

Home Values Rose In June 2011

Case-Shiller Changes May to June 2011

Has housing turned the corner for good?

The June 2011 Case-Shiller Index reading posted strong numbers across the board, with each of the index’s 20 tracked markets showing home price improvement from May.

Some markets — Chicago and Minneapolis — rose as much as 3.2 percent.

The rise in values is nothing about which to get overly excited, however. The Case-Shiller Index is just re-reporting what multiple data sets have already shown about the summer housing market; that it was stronger than the spring market, and that a recovery is underway, but occurring locally, at different rates.

For example, the June 2011 Case-Shiller Index shows the following :

  • Denver, Dallas, Washington D.C., and the “California Cities” bottomed in 2009. Each has shown steady improvement since.
  • None of the Case-Shiller cities showed negative growth between May and June 2011.
  • 12 of Case-Shiller’s tracked cities have improved over 3 consecutive months.

In isolation, these statistics appear promising, but it’s important to remember that the Case-Shiller Index is a backward-looking data set, focusing on just a portion of the national housing economy.

As an illustration, the Case-Shiller Index’s “national report” only includes data from 20 cities nationwide. They’re not the 20 biggest cities, either. Smaller metropolitan areas such as Minneapolis (#48) and Tampa (#51) are included.

Larger ones including Houston (#4), Philadelphia (#5) and San Jose (#10) are not.

In addition, the Case-Shiller index fails to track sales of condominiums, multi-unit homes and new construction. In some markets, including Chicago, these excluded home type can represent a large share of the overall market.

The Case-Shiller Index is a fine data set for policy makers and economists. It describes the broader housing market and shows long-term trends. For the individual home buyer , however, it’s much less useful. More than “broad data”, you want focused data that’s current and relevant.

The best place for data like that is a local real estate agent.