The following makes for an interesting read, written by Realtor.com’s Jonathan Smoke.
Once upon a time, all across this great land, consumers lacked information and insights into the housing market. If you wanted to know how home prices were trending, you had to find an expert local Realtor® or some other real estate pro, and quiz them about market conditions.
Today, we have tons of real estate data at our fingers, thanks to the internet and websites like this one. In fact, maybe we have too much, considering that we’re also being bombarded by news stories, blog posts, tweets, and financial talking heads blathering away on TV.
The real estate metric that typically attracts the most attention is home prices. No surprise. After all, a contracted price is the market’s ultimate stamp of value. So if we want to know where the market is going, we should be able to track the prices of homes—just like stocks or new cars or barrels of oil. Right?
Not so fast. News alert: Homes are not like stocks or new cars or barrels of oil, and data about home sales are not readily available and captured on a timely basis.
Homes are inherently unique—for the most part, they can’t be identically mass-produced. Even in those huge developments where the homes all look alike, they’ll still have differing physical attributes, including different views of at least what is on either side.
And there’s this: A home’s value is also influenced by who lives in it. Minor differences in paint, wallpaper, and flooring choices over time evolve into radically different styles and improvements that result in differing levels of appeal to others. Some owners take fastidious care of their homes; others, not so much. The age of the kitchen, baths, major appliances, and mechanical systems will all vary—and influence what buyers are willing to pay.
Given the unique nature of homes and how prices are determined through negotiations between buyers and sellers, reports on home prices are, at best, background context.
Conflicting numbers, confused consumers
This month I’ve been seeing more variation than usual in the interpretations of national home price trends.
Last week, the National Association of Realtors® reported that the national median existing-home price in August was up 5.1% over the median price last year. NAR breaks down prices in the four major regions of the country, which varied in their increase from 1% in the Northeast to 9% in the West.
CoreLogic, one of the largest property and home sales data providers in the U.S., reported that home prices were up 6% in July through the lens of their repeat sales index. For comparison, NAR reported that the median existing-home sale price in July was up 5% over last year.
The Federal Housing Finance Agency’s purchase-only index increased in value by 5.8% compared with last year in July. This index tracks only home sales financed by conventional and conforming mortgages, but its July reading was consistent with CoreLogic’s.
Then the last reading we received was from Case-Shiller, which is followed widely in financial markets. The Case-Shiller national index for July, which is actually a three-month average covering May, June, and July, showed that home prices increased 5.1% over the same period last year.
It’s time to take a step back.
So what can we conclude from all of these national price metrics? The U.S. housing market in aggregate saw home prices appreciate from 5% to 5.8% in July. The problem with this, of course, is that there is no such thing as a national housing market.
Housing markets are local, very local
The two most widely followed indices that make up the Case-Shiller reports sound local, but au contraire. Look closer. They actually cover two collections of large markets known as the 10-city and 20-city composite indices. Financial analysts love to follow them, but since they’re collections of markets, they are not always a good representation of what is happening in aggregate across the U.S.
The 20-city index was up 5% for the three months ending in July, compared with the same reading in June, which was up 5.1%. The 10-city was up 4.2% in July, and down from 4.3% in June.
These are the markets in the 10-city index: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, DC. The 20-city adds Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (OR), Seattle, and Tampa.
So if you don’t live in one of these markets, these composites are not very helpful to you as a consumer!
If you do live in one of these markets, it is much better to scrutinize what Case-Shiller reports on your hometown rather than looking at the composite. Because those other 19 cities? They might be masking your market’s true trend.
For example, the Portland area’s July index was up 12% over last year. But the indices covering the Washington and New York metro areas were up only 2%.
But even that 12.4% reading for Portland won’t help a Portland buyer understand how her favorite neighborhood is trending. All of these metrics are aggregates representing enormous areas. And yet real estate is inherently hyperlocal.
OK, follow us here: The Portland metropolitan statistical area (when we economists talk about cities, we’re actually talking about MSAs) covers seven counties across the states of Oregon and Washington. These counties include more than 70 well-populated ZIP codes.
In July, according to realtor.com®-reported data, the median list price across the Portland MSA was up 16% over last year. But by ZIP code, list price appreciation varied from up 29% in 97211 in Portland to down 9% in 98660 in Vancouver, WA. Depending on where you live in Portland, an increase of 16% could be wishful thinking, or it could be way understating the appreciation.
So as it turns out, things haven’t changed that much since the days before the internet, when we had way less info on housing and home price trends. Since home values are complex, inherently unique, and highly variable by neighborhood, no reported price metric will beat the insights of local Realtors and the other professionals who focus on the attributes that make one home worth more than another. Getting that one-on-one intel is the way you’ll truly get plugged in to the market trends in your neighborhood.
Published on 2016-10-04 12:27:23
