News publications across the country use data from reports like the Case-Shiller index (home prices) and the U.S. Census Bureau’s Building Permits Survey (new construction starts) to accurately and authoritatively write about national real estate market trends. While these indices are enough to satisfy curiosity about the state of the U.S. real estate market, it is important to note that they have two major shortcomings.
The first shortcoming is that all current real estate indices are concerned with what has happened in the past. For example, the Building Permits Survey looks at permits issued over the last month to last year while the Case-Shiller index looks at home prices over the last three months. Neither index gives any indication about what home prices and building permit issuances are likely to be in the future. Everyone, from real estate experts to consumers, must extrapolate on the indices for themselves in order to glean insight on what might happen in a month, quarter or year down the road.
The second shortcoming of these indices lies in their scope. While the Case-Shiller index is probably the best gauge of real estate values for the U.S. as a whole, it can be dangerous to apply at the local level. For example, the Case-Shiller index plummeted during the housing market collapse to reflect the disastrous drop in U.S. real estate values. Anyone that used the Case-Shiller index to infer that home prices in the Phoenix and Las Vegas areas were hit hard during this time period would be correct, but anyone who did the same for the Seattle or San Francisco markets would have been dead wrong.
So, as a whole, U.S. real estate market indices are either too broad or too retrospective to be accurately applied to local markets in the future. This fact bothers the RealEstate.com team, and we have taken it upon ourselves to create another index that will simultaneously provide a unique look at real estate markets and avoid both these shortcomings.
Designing a New Real Estate Index
While we were brainstorming how to incorporate future orientation and local insight into a new index, the RealEstate.com team realized that real estate professionals can offer both.
Admittedly, no one in the country has better knowledge of national real estate trends than the economists and journalists that specialize in our industry. However, none of them have the slightest hope of ever knowing more about local real estate markets than the agents, brokers, appraisers and other professionals that work there. This means that the biggest expert on your local market is none other than you, and we can gain insight on your market by surveying you.
Real estate professionals’ expertise and knowledge of their communities also gives them the unique ability to gauge how their markets will perform in the future. For example, an agent that knows about a slew of foreclosures entering their local market can confidently predict that real estate values will soon decline. Likewise, an agent that has observed an influx of young, well-paid professionals in their communities can be confident that real estate transactions will increase there. These are insights that economists and journalists, sitting in offices in New York and a handful of other major cities, simply can’t get by staring at a spreadsheet.
After realizing the above, the RealEstate.com team decided to periodically conduct surveys to ask real estate professionals about how confident they are in various aspects of their local markets. The results of these surveys will be used to create a numerical representation of how confident real estate professionals across the country are that their local markets will improve in the near future. The survey will be formatted so that we can get a “confidence index” for local, regional and the national markets.
We settled on the name “Real Estate Confidence Index” to describe it.
Formatting the Real Estate Confidence Index
The Real Estate Confidence Index will be created quarterly and will be based on the results of a short, five-minute online survey. All real estate professionals are invited to participate in these surveys though we anticipate that ActiveRain, as the largest social network for real estate professionals in the world, will provide most of the respondents.
We identified four major categories that relate to the overall strength of real estate markets. They are as follows:
- Real estate values
- New home construction starts
- Real estate transactions
- Health of the local economy
Every survey will ask respondents to assess their confidence in each of these categories, from “very confident” to “not at all confident.” The only other question will ask respondents to share their thoughts about the future of their local markets in one or two sentences.
Survey responses will be used to create simple numerical scores, from 1 to 100, that will succinctly summarize agent confidence. A score of 1 will indicate no confidence that real estate markets will improve. A score of 100 will indicate that every real estate professional that took the survey is confident that their real estate market will improve. A score of 50 will indicate that respondents believe that their local markets will see no change in the upcoming quarter.
How the Real Estate Confidence Index Will Be Used
The Real Estate Confidence Index’s home will be on RealEstate.com, in the same section of the site as its blog. We will freely distribute the results of the Real Estate Confidence Index survey - and the index itself - to any agent, publication or blog that wants them.
Our hope is that consumers, journalists, economists and real estate professionals across the country will come to see the Real Estate Confidence Index - your opinions - as an important and accurate gauge of the health of U.S. real estate at every level. With your help - by taking the survey and sharing their results - we can quickly accomplish this goal!