Sun State Savings

Last week, Stan­dard & Poor’s released its Case-Shiller Index for Decem­ber 2010. The index is a home val­u­a­tion tracker, meant to meausure the change in home prices from one period to the next.

December’s Case-Shiller Index showed major deval­u­a­tions nation­wide. As com­pared to Decem­ber 2009, on a year-over-year basis, home val­ues fell in 18 of the Case Shiller Index’s 20 tracked mar­kets, and the U.S. National Index dropped 4 per­cent overall. 

The retreat puts December’s home val­ues at sim­i­lar lev­els as com­pared to early-2003.

That said, buy­ers and sell­ers would be wise to take the find­ings lightly. The Case-Shiller Index is inher­ently flawed. As such, its results are nei­ther prac­ti­cal — nor rel­e­vant — to every­day Americans.

There are 3 Case-Shiller flaws, in fact.

The first flaw is the index’s lim­ited sam­ple set. Wikipedia lists 3,100+ munic­i­pal­i­ties nation­wide and we can be cer­tain that real estate is bought and sold in all of them. The Case-Shiller Index, how­ever, mea­sures just 20 of them. That’s less than 1% of all U.S. cities. And then, within those tracked cities, Case-Shiller reports an aver­age, lump­ing dis­parate neigh­bor­hoods and streets into one big number.

The “national fig­ures” aren’t really national, and the “city data” doesn’t apply to your home, specifically.

The sec­ond Case-Shiller Index flaw is how it mea­sures home value changes. The index only con­sider at “repeat sales” of the same home, so long as that home is a single-family, detached prop­erty. Con­do­mini­ums, multi-family homes, and new con­struc­tion are ignored in the Case-Shiller Index.

Because dis­tressed prop­er­ties account for such a high per­cent­age of resales lately — 36% in Decem­ber –fore­clo­sures and short sales skew Case-Shiller Index worse.

And, lastly, the Case-Shiller Index is flawed by “age”. Because it reports closed sales a 60-day delay, December’s Case-Shiller Index is mea­sur­ing the val­ues of home sales con­tracts from Sep­tem­ber and Octo­ber. The Case-Shiller Index, there­fore, is a snap­shot of the not-so-recent past, and does lit­tle to tell us about the next 60 days.

Over­all, the Case-Shiller Index is help­ful tool for econ­o­mists and policy-makers, but it doesn’t do much good for indi­vid­ual home­own­ers. For accu­rate, real-time hous­ing data in your local mar­ket, talk to a real estate pro­fes­sional instead.