The Real Story Behind Case-Shiller Home Price "Increases"

Real Estate Broker/Owner

Case-Shiller announced today that home prices rose in June from May by 1.4% for both the 10-city and 20-city indexes.

I'm still trying to figure out why this makes headlines and why people think that this indicates that the housing market is bottoming.

Of course home prices rose from May to June.  They did it in 2007 and 2008 too.  They do it every year.  It is called a seasonal variance

According to the NAR the median home value rose from $222,700 to $229,000 in May of 2007 to June of 2007.

And then again in 2008, the median home value rose from $207,900 in May to $215,000 in June.

And here we are in 2009, and the median home value according to the NAR rose from $174,700 in May to $182,000 in June.

It's what home values do.

In order to better understand real estate trends you need to compare year over year data.  Just as a weather man wouldn't compare June temperatures to those in December, you can't compare month over month data unless the data is seasonally adjusted.  The Case-Shiller index is not seasonally adjusted.  

According to Case-Shiller, year over year, from the 2Q of 2008 to the 2Q of 2009, home values have fallen by -14.9%.  Over this same time frame, the NAR reported a -13.8% decline.

Comments (4)

Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA


Aug 25, 2009 03:40 PM
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

While I don't disagree, there are a few thoughts to consider.

First, sometimes one-year is just too long and doesn't provide useful granularity.  We all know the market has dropped.  What we all _want_ to know is when we've reached bottom.  At a one-year granularity, I could conceivably miss the bottom by an entire year.

Also, the seasonal increases were:
2.83% for 2007
3.41% for 2008
4.18% for 2009
Which, taken in relative isolation, means that if we are not on the rise that at least the parachute has kicked in and the free fall is slowing.

Aug 25, 2009 04:40 PM
Mark MacKenzie
Phoenix, AZ

Eric:  Thank you.

Robert:  You make some good points.  I have written about the year over year declines before.  The past two months have shown a deceleration in terms of the year over year declines, according to the NAR.  This is good news, but I think it needs to be measured. 

The reason year over year home value declines may have tempered recently is because of the massive foreclosure moratoriums that only recently expired in March.  Not only are we not seeing all of the excess inventory that should be on the market right now had it not been for the moratoriums, but moving forward, foreclosures rates are accelerating beyond what we have seen in the past, according to RealtyTrac.

I believe what we are experiencing is the eye of the storm. 

As an aside, I think the better indicator in determining the health of the market is the month's supply of housing.  You can look at it in real time as opposed to last year's home value changes.  While the month's supply indicator has improved since last year, the moratoriums have certainly contributed to it. 

Aug 25, 2009 04:53 PM
Robert T. Boyer
FHA Loan, VA Loan, Jumbo Loan,FHA Loans,VA Loans,Jumbo Loans - La Jolla, CA
San Diego Real Estate & Mortgage Loans, Ph.D. | VA Home Loan

In CA we had an extra 90 day moratorium that started June 15 - consequently we are very low on inventory at the moment.  And yes, the Alt-A resets are going to be painful to endure in the coming years.

Aug 25, 2009 06:04 PM