Today Standard & Poor's released their report on national home prices. The media jumped on it immediately, especially since it showed a 4+% decrease in prices over the past year. Aside from the fact that S&P's index implies a "national home market," no one bothered to mention what is unusual about the index. (Note, the index covers about 20 metro areas.)
The Standard & Poor's index is based on the Case-Shiller model which only uses the same house sold over a period of time. The FHA, unless I'm mistaken, uses the same model. The model has something going for it, most clearly that we're not talking about averages or even medians, but the same house sold a second time several months or years later. No adjusting for number of rooms, finished basement, or whatever. However, the model treats a very small subset of data. How many homes in your market have sold a year later?
In my market if there are two or three out of the 500 properties that sell in Hillsborough NJ each year, that would be unusual. To be honest, I don't know the time span that the model uses, but after two or three years, my guess is that the data is suspect.
Would a buyer's knowledge of an earlier price (easily obtained these days) have an impact on her offer on a property? That is, would a prior sale have a psychological effect? And what would it be?
My point is that when the media toss the numbers out, they do not always explain the significance. Will we be treated to an index showing appreciation/depreciation of homes built in August 1953? And will the public be told? Hmmm....