Today Inman reported the latest Case Shiller numbers came out:
"A monthly home-price index that tracks price changes in 20 U.S. metro areas dropped 18 percent in October compared to the same month last year...The year-over-year decline was the largest on record for the Standard & Poor's/Case-Shiller 20-metro area price index, which dates back over two decades..."
I wanted to bring some attention to the way these numbers are calculated, as there are some strong biases which could potentially skew these numbers.
The Case Shiller index was invented in the 60's using a methodology that weighted repeat sales data. Before this people simply looked at price changes between repeat sales of a particular home, verses looking at median sales price data for a certain time period, to figure appreciation/depreciation rates.
However, when you look at the median sales prices, the number is going to be heavily influenced by the type of homes that are selling at the given time. For example, in my neighborhood right now one and two bedroom condos are still moving at a decent clip. However more expensive, single family homes are taking much longer to sell. So if I were to look at median sales for my neighborhood, given that more of these less expensive houses will sell this year than last year, it will make the median sales price look lower. The Index would be biased by the sheer fact that more, smaller condos are selling right now. If housing prices would have remained constant, but more cheaper houses are moving, it would make an area look like it is depreciating, when in fact this may not be true.
Further, the Case Shiller Index looks only at homes that have been sold at least twice. So if you live in an area that has a high density of new construction, much of the sold inventory will not be taken into account to the Index, and thus could skew your numbers as well.
The final point to keep in mind about the Case Shiller number is that it reports on a monthly basis with a two month data lag. We all know what a wild ride real estate has been these past few years and how quickly things can change. A three month data lag could potentially mean a lot in dollars lost or gained for a local market.
At the end of the day, the Index is just an index. It, like many other stats out there, is nice to help you get an idea of general market conditions. However, it is important to consult with a professional, who has feet on the street, to get the real picture.