Case Shiller Index: Behind the #'s in the Silicon Valley

Real Estate Agent with CATARRA CA BRE# 01871201



Once upon a time I was trained as a mathematician with an emphasis in statistics.  The most important thing I ever learned about statistics is this; there are lies, damned lies and statistics.   This is why I have issues with the latest Case Shiller Index that was just published this week.

I am not saying that there is something inherently wrong or evil about the Case Shiller Index but that you need to look at the numbers behind the analysis.  In other words, you can massage the data many ways to make whatever case you want to make.  Looking at the actual numbers is never as fun as reading the headlines so most people never do. 

However, I do not like getting an email from one of my buyers quoting the Case Shiller Index as the reason they are not ready to make an offer on a property that is as close to perfect for their needs as any property ever will be. 

The headlines for the various articles that quoted the Case Shiller Index were meant to grab your attention.  Titles such as "Housing Market takes a Second Dip" "Economy gains, yet housing spirals downward" and my favorite "Home prices lowest since 2006 bust"

These were meant to create a reaction and they did.  However if you actually open up the spreadsheet that Case Shiller used to create the index and read the numbers for the San Francisco bay area you get a little different story.

Using the seasonally adjusted numbers, April 2009 was the low at an Index of 120.31. May 2010 has a high point of 142.53, brought on by the rush to cash in on the federal and state tax credits.  In March 2011 the index is at 134.17 which is higher than the low point of 2009. 

So is it a double dip if the index is higher than the low point but lower than an artificial high created by the tax credits?  To me it looks like we are on the way to recovering from the low of 2009 but we are not in a double dip if you account for the impact of tax credits on the buying behavior last spring. 

So with the other statistics I found in the spreadsheet I could have come up with a headline like this:

“Housing prices in the San Francisco area have fallen to 2001 levels”

 I could base this on the fact that the March 2011 Index is very close to the same level as March 2001, the index for March 2011 was 134.17 and March 2001's was 134.94.

 Is that really a meaningful statistic?  I say probably not, but it makes for a great headline.

So is the real estate market up, down or sideways?  

What I am observing is that the fundamentals of real estate are in place.  A property that is in a good location, in good condition at a fair market price is selling.  But that makes for a lousy headline.


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Comments (4)

Dave Bittner
Paradise Realty - Heeney, CO
Summit County, Colorado

While I love the methodology of the Case-Shiller home index, I am amazed at the conclusions that are drawn.   I spent several hours yesterday trying to duplicate their conclusions and was repeatedly upset by how they used the data.

My macro view of the data (nationwide and Denver) is that there was a real estate bubble, it has burst, and now we are bumping along the bottom as the inventory is absorbed.  Trying to draw micro-economic conclusions from macro-economic data is just wrong!  Who cares if the nationwide index was down 4% from the previous quarter?  When graphed, the curve clearly shows that we're back to the pre-bubble prices, which were based on what buyers could afford to pay.

Jun 03, 2011 05:26 AM
Chris Alston
Chris Alston (Keller Williams Realty, Silicon Valley, California) - Campbell, CA
Silicon Valley, California

Great definition of the report and our local area!  Great stuff Carla!  :)

Jun 03, 2011 05:45 PM
Carla Dimond
CATARRA - Mountain View, CA
(Silicon Valley)

Dave, so true nothing is more local than real estate

Jun 04, 2011 05:32 AM
Carla Dimond
CATARRA - Mountain View, CA
(Silicon Valley)

Chris, thank you!  This report just really bugged me

Jun 04, 2011 05:32 AM