Case-Shiller Index: 17 Of 20 U.S. Housing Markets Slipped In September

Nov 30, 2011

Case-Shiller Index September 2011

Standard & Poor’s released its September 2011 Case-Shiller Index this week.  The index tracks home price changes in select cities between months, quarters, and years.

The Case-Shiller Index for September showed drastic devaluations nationwide.

As compared to August, home values fell throughout 17 of the index’s 20 tracked markets, led by Atlanta’s 5.9% drop.  On an annual basis, home values have now returned to early-2003 levels.  As you can see, Denver remained relatively constant, dropping less than 1%, even according to Case-Shiller.

That said, home buyers and sellers in the Genesee area should be cautious when referencing the Case-Shiller Index.  The index is a flawed metric and as such, can lead to improper conclusions about the housing market overall. The Case-Shiller Index’s first flaw is its most obvious — its limited sample set. According to Wikipedia, there are more than 3,100 municipalities nationwide.  Yet, the Case-Shiller Index includes data from just 20 of them in its findings.  These 20 cities account for fewer than 1% of all U.S. cities, and just a small percentage of the overall U.S. population. The “national figures” aren’t really national, in other words. Even on a city-by-city basis, the Case-Shiller Index gets it wrong.

By lumping disparate neighborhoods into a single, city-wide result, the index ignores the relative strength of one area at the expense of another.  In the aforementioned Atlanta, there are areas that fared much better than September’s -5.9% as cited by Case-Shiller.  Some areas fared much worse.

A second flaw in the Case-Shiller Index is its methodology for measuring changes in home value.  The index only considers “repeat sales” of the same home in its findings, and those homes must be single-family, detached property.  Condominiums, multi-family homes, and new construction are not included. In some cities — Chicago, for example — “excluded” property types can account for a large percentage of total monthly sales.

And, third, the Case-Shiller Index is flawed by “age”. Because Standard & Poor’s publishes on a 60-day delay, the Case-Shiller Index is reporting on a housing that no longer exists.  Sales that closed in September are based on contracts written from June-August –a time-frame that’s 6 months aged.

The best use of the Case-Shiller Index is as an analysis tool for economists and policy-makers interested in the long-term trends of U.S. housing.  The index should not be used by the public to make buying or selling decisions. We recommend that you speak with a real estate professional for up-to-date, accurate market data.

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