Home Values Start The Year Strong

May 2, 2012 By Leave a Comment

HPI 2007-2012

Home prices started the year on an upswing. 

According to the Federal Home Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index’s assertion that home values are sinking.

Last week, Standard & Poor’s Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months. 

As a home buyer or seller in Belfast , data showing “rising home values” or “falling home values” may be of interest to you, but we can’t forget that most home valuation trackers — including both the government’s Home Price Index and the private sector Case-Shiller Index — have a severe, built-in flaw.

Both used “aged” data. Today, the calendar reads May. Yet, we’re still discussing February’s housing data.

Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the “right now” of housing. And, even then, characterizing the data as “two-plus months old” may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.

Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we’re really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.

Data that’s 5 months old is of little relevance to today’s buyers and sellers. Today’s market is driven by today’s economics.

The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller throughout Maine , though, it’s much less useful. Real-time data is what matters to you.

For that, talk to a real estate professional.

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Home Values Rose For the 4th Straight Month

October 5, 2011 By Leave a Comment

Home Price Index from April 2007 peak

The government is confirming what the private sector has already shown —  home values are on the rise.

The Federal Home Finance Agency’s Home Price Index shows home values rose 0.8% in July.

July marks the fourth straight month that home values climbed and the FHFA’s Home Price Index is the latest in a series of “rising home values” reports — an encouraging trend for buyers and sellers in Belfast and nationwide.

Last week, the S&P Case-Shiller Index showed home value up nearly 1 percent in July. CoreLogic reached a similar conclusion.

Nationwide, values are back to their highest levels since November 2010. Clearly, the housing market in Maine is moving in the right direction. Or is it?

Although the data from the government and from private firms such as CoreLogic is encouraging, it’s also flawed. As such, we have to be careful about the conclusions we draw from the data.

The flaws of Home Price Index are glaring :

  1. Only homes backed by Fannie Mae or Freddie Mac are included in the index. In today’s market, because of the FHA’s popularity, that leaves 1 of 3 homes “uncounted”.
  2. Only home resales are counted. New home sales are omitted entirely.
  3. The data comes with a 60-day delay. The October market is different from July’s.

Despite these shortcomings, however, the Home Price Index remains relevant. It’s among the most through home valuation models and it’s often used by economists and policy-makers.

When the Home Price Index is rising, Wall Street and Capitol Hill take notice. For residents of “Main Street”, however, the data may not be as important. To get local, up-to-date market statistics , talk with a professional real estate agent.

Since peaking in April 2007, the FHFA’s Home Price Index is off 17.6 percent.

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Which Model Is More Accurate : The Case-Shiller Index Or The Home Price Index?

September 9, 2010 By Leave a Comment

Home Price Index from April 2007 peak

The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.

According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.

So, as a home buyer and/or homeowner in Houlton , by which valuation model should you make your bets?  Perhaps neither. 

This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets. 

The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population. 

That’s hardly representative of the housing stock overall.

By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties.  The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing. 

The HPI ignores homes backed by “jumbo” loans, too.

Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood. A real estate agent in the area does, however.

The best way to get a pulse for what’s happening in markets right now is to talk to somebody with good data.

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Home Values Within 12.5 Percent Of April 2007 Peak, Nationwide

August 6, 2010 By Leave a Comment

Home Price Index from April 2007 peak

According the Federal Home Finance Agency’s Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide.  This, after a half-percent monthly increase in prices in May, on average.

Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May’s half-point increase is an average, and not specific to a particular area.

In contrast to “national markets”, the real estate markets in which you and I live are decidedly local.  It’s a major difference and the distinction renders the Home Price Index somewhat less important. 

After all, the HPI doesn’t account for housing activity in individual neighborhoods , nor does it track value across cities like Belfast. Instead, it summarizes data in giant chunks of geography.

A quick look at the HPI regional data proves the point. Of the HPI’s 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average.  The others varied by as much 1.3 percent.

As a sample:

  • Mountain Region : + 1.7 percent
  • New England : + 0.2 percent
  • South Atlantic : +1.0 percent

And this is on a regional basis. The HPI’s applicability to state, city and neighborhood markets is even less appropriate.

Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood.  That type of granularity can’t be tracked in a report like the Home Price Index.

The best place to get that data is from a local real estate agent that knows the market well.

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The Flawed Home Price Index Shows Home Values Up 0.8 Percent

July 9, 2010 By Leave a Comment

Monthly change in Home Price Index from April 2007 peak

Last week, the Case-Shiller Index reported home values up 0.8 percent across 20 tracked markets. The public-sector Federal Housing Finance Agency has reached a similar conclusion.

Reporting on a two-month lag, the government’s Home Price Index shows home values up 0.8 percent in April, buoyed by the expiring federal home buyer tax credit and low mortgage rates.  It’s a positive signal for a recovering housing market — in Houlton and everywhere else.

But just because the Home Price Index says home values are rising, that doesn’t mean they are. The Home Price Index methodology is flawed on multiple fronts.

First, the Home Price Index reports on a 60-day delay. This two-month lag turns the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for direction, HPI won’t give it to you — you’ll have to get that analysis from your real estate agent.

Second, HPI only accounts for home values in which the home’s attached mortgage is backed by Fannie Mae or Freddie Mac.  As the FHA market share grows, fewer homes get included in the HPI sample set, and HPI values may be skewed high or low.

And, third, HPI doesn’t account for new home sales — only repeat ones.  This, too, eliminates a major segment of the market.

All of that said, though, the Home Price Index remains important to housing.  It’s still the most comprehensive home valuation model in print and it’s been giving strong readings since the start of year.  You can’t ignore that on any level.

It’s July and you may have missed the “rock bottom” home prices from earlier in the year, but homes are still relatively inexpensive. Couple that with all-time low mortgage rates and home affordability looks excellent. Consider making an offer while the terms are right.

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