10% Increase the Last Year? Not According to Agents
According to the latest Case-Shiller Home Price Index (“Case-Shiller”), the U.S. housing market is up about 10% the last year.
However, if you ask in-the-trenches Realtors (like me), they’ll tell you the real number is lower — something like up 5%.
Who’s right?
Put is this way: it ain’t Case-Shiller.
“Matched Pair” Methodology
In fact, Case-Shiller is exaggerating price increases now for the same reason it exaggerated price drops when the market was falling.
That’s because Case-Shiller’s “matched pair” methodology is skewed by the changing mix of sold homes — specifically, the relative number of “traditional sales” (no bank involved) vs. lender-mediated or distressed sales (foreclosures and short sales).
“Apples-to-Apples, But . . .”
By only focusing on purchases and sales of the same home, Case-Shiller neatly avoids apples-to-oranges comparison problems.
However, in the process, the index falls prey to another problem: in housing bear markets characterized by lots of foreclosures, high unemployment, etc., distressed sales loom large.
On average, those homes are relatively inexpensive, and pull down the median home sales price.
The reverse happens in a housing bull market: distressed sales wane, and the median sales price rises.
The latter phenomenon is now skewing — upwards — Case-Shiller’s latest batch of numbers.
Which is something the Realtors know, even if the economists, financial journalists, and the public . . . don’t.
See also, “Case-Shiller Misconceptions.”
