Statistical differences in housing values
I noticed an interesting article by Kenneth Harvey, nationally syndicated columnist for the Washington Post, whose column is featured every Saturday in the Charleston Post and Courier real estate section talking about the difference in house values depending on which index you are looking at.
He is referring to the S&P Case - Shiller national home price index and the Office of Federal Housing Enterprise Oversight (OFHEO) survey of home prices were dramatically different. The S&P Case - Shiller reported prices declined by 3.2% nationally from the same period last year. Mr. Harvey said, “The sharp drop in the Case-Shiller index grabbed headlines, helped rattle Wall Street and fed fears that housing values might be unraveling in many of the country's biggest markets.”
OFHEO reported a 3.2% gain and on a market by market basis, in some markets, there were gains instead of losses and in other markets, the indexes moved in the same direction but by differing percentages. The difference is the data used and the purpose of the index.
The OFHEO report only considers new loans and refinancing by Fannie Mae and Freddie Mac omitting transactions over $417,000 and FHA and VA and only limited coverage of subprime mortgages. On the other hand, the S&P Case - Shiller study does not include refinancing which tend to have more generous appraisals than purchases and covers jumbo loans, subprime loans and other “exotic” mortgages but doesn’t include condominiums.
Mr. Harvey points out, “However, the Case-Shiller index -- devised to facilitate creation of a trading marketplace for housing futures and financial hedging vehicles -- has its own limitations. For example, it contains no data from 13 states and has incomplete information from 29 states because of legal restrictions and lack of electronic records from local courthouses.” OFHEO chief economist Patrick Lawler notes that the Case - Shiller numbers are weighted -- a $700,000 house counts twice as much toward the index as a $350,000 house. The OFHEO numbers are not weighted.
So what are we to believe when it comes to statistics and the value of homes in the Charleston South Carolina real estate market. First of all, in two nearby cities, Charlotte NC prices are up 6.8% and Atlanta GA prices are up 1.6%. Charlotte remains one of the best performing cities in the country along with Seattle WA prices up 7.9% leading all top 20 markets in the Case - Shiller index.
Leading declines in Case - Shiller were posted in Detroit, down 11.0%, Tampa, down 7.7%, San Diego down 7.3%, Washington DC down 7.0%, Phoenix down 6.6%, Las Vegas down 5.1% and Miami down 4.8%. As you clearly notice, other than Detroit with serious economic issues, the cities leading the decline were mostly cities that had far above average appreciation in recent years.
Because Charleston South Carolina is not a top 20 market, we aren’t lucky enough to be ranked in the Case - Shiller index and I have to rely on Charleston’s MLS for pricing information which I report each month on this blog. The most recent pricing data on a year over year basis for single family homes in Charleston is up .63% on an average basis and up 2.62% on a median basis. For condos and townhomes, prices are down .62% on an average basis and up 1.54% on a median basis. Based on all the information I can find, the Charleston South Carolina real estate market is holding up rather well despite media reports to the contrary.
Mr. Harvey’s bottom line, “Don't overreact when you see big drops -- or jumps -- in these indexes. They are measuring different things, and no national index gets down to the nitty-gritty: what's happening to property values in your Zip code, micro market or neighborhood.” Please read the entire article.