Sun State Savings

For the 17^th straight month, the Case-Shiller Index reports that home val­ues are ris­ing across the United States. As com­pared to June, July’s prices were up by 4 percent.

How­ever, despite the improve­ment, July’s Case-Shiller Index showed weaker as com­pared to prior months.

• In June, just 3 cities posted year-to-year reduc­tions in home value. In July, 10 of 20 did.
• In June, just 1 city posted a month-to-month reduc­tion in home value. In July, 7 of 20 did.

As a spokesper­son for Case-Shiller said, val­ues “crept for­ward” in July. But not that it mat­ters — the Case-Shiller Index is a bet­ter tool for econ­o­mists than it is for home­own­ers. This is for 3 reasons.

First, the Case-Shiller Index is on a 60-day delay but real estate sales are based on prices today. A lot can change in 60 days, and it often does. There­fore, the Case-Shiller Index is a bet­ter snap­shot of the for­mer mar­ket than the cur­rent one.

Sec­ond, the Case-Shiller Index is geographically-limited. It tracks just 20 cities, ignor­ing some of the largest met­ro­pol­i­tan areas in the coun­try includ­ing Hous­ton, Philadel­phia, and San Jose. Smaller cities like Tampa are included.

And, lastly, national real estate data remains some­what use­less any­way. All real estate is local, ren­der­ing city­wide sta­tis­tics too broad to have any real mean­ing to an indi­vid­ual. To find out what’s hap­pen­ing on a neighborhood-by-neighborhood level, you can’t look to a national sur­vey — you have to look to a local real estate agent instead.

Accord­ing to the Stan­dard & Poors Case-Shiller Index, home val­ues rose 5 per­cent in June ver­sus the month prior, and 4 per­cent from a year ear­lier.  It’s the 16^th con­sec­u­tive month in which Case-Shiller reported an increase in home val­ues and the third straight month of out­stand­ing results.

That said, home­own­ers and home buy­ers would do well to tem­per Case-Shiller enthu­si­asm. The June fig­ures are issued on 60-day delay and, over the last 60 days, hous­ing data has been lack­lus­ter at best.

• Exist­ing Home Sales are down 27 percent
• New Home Sales are down 12 percent
• Home­builder con­fi­dence is down

Sto­ries like these high­light a key weak­ness of the Case-Shiller Index — it’s out of date as soon as it’s pub­lished. Because of this, the Case-Shiller Index rel­e­vance to every­day Amer­i­cans is muted. Peo­ple don’t buy homes in the “60 days ago” real estate mar­ket, after all.

June is ancient real estate history.

How­ever, the Case-Shiller Index does have its place. As the most widely-followed, private-sector hous­ing tracker, the index is used to help make pol­icy deci­sions and to shape Wall Street’s expec­ta­tions of the econ­omy. This means that a strong Case-Shiller read­ing can cause mort­gage rates to rise, and a weak Case-Shiller read­ing can cause rates to fall.

Tues­day, mort­gage rates fell.

Stan­dard & Poors released its Case-Shiller Index Tues­day. On a seasonally-adjusted basis, between April and May 2010, home prices rose in 19 of Case-Shiller’s 20 tracked mar­kets.  It’s the sec­ond straight month of strong Case-Shiller findings.

Also, May’s num­bers are a mirror-image of February’s. In Feb­ru­ary, 19 of 20 mar­kets lost value.

In its press release, the Case-Shiller staff resisted call­ing May’s data proof of a hous­ing recov­ery, not­ing that home val­ues remain flat as com­pared to Octo­ber of last year. How­ever, there are some note­wor­thy num­bers in the Case-Shiller report.

1. 13 of the 20 tracked cities are show­ing home price improve­ment year-over-year
2. Fore­clo­sure poster­ch­lld San Diego has now shown 13 straight months of improvement
3. San Diego, San Fran­cisco and Min­neapo­lis are show­ing double-digit annual growth

These are all good signs for the hous­ing mar­ket, but the Case-Shiller Index is not with­out its flaws. Most notably, the data is lim­ited to just 20 cities nation­wide — and they’re not even the 20 largest ones. 

Cities like Hous­ton, Philadel­phia, and San Jose are excluded from Case-Shiller, while cities like Tampa (#54) are not.

Another Case-Shiller flaw is that it reports on a 2-month delay.

There­fore, today is sev­eral days from the start of August but we’re now reflect­ing on data from May. Given the speed at which the real estate mar­ket can change, May’s data is almost ancient.  Today’s val­ues may be higher or lower than what Case-Shiller reports.

For home buy­ers, reports like the Case-Shiller Index may not be use­ful in mak­ing a “Buy or Not Buy” deci­sion, but can aid in watch­ing longer-term trends in hous­ing.  For real-time data, talk to a real estate agent with access to local fig­ures instead.