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| Home Price Indices Close Out 2007 Decidedly Negative |
| Written by Jonathan Smoke | |
| 02.26.2008 | |
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Discuss this article on the forums. (0 posts) The housing news today was dominated by the release of the S&P/Case-Shiller price indices and the OFHEO price indices. Both were reporting the index values for December 2007. Did anyone involved in housing need affirmation that December would close out housing for 2007 on a decidedly negative note? S&P/Case Shiller reported that 4Q 2007 home prices measured in their national index were down 8.9% from the 4Q of 2006. The national index reflects existing home prices in all nine U.S. census divisions. OFHEO reported that 4Q 2007 was 1.3% below 3Q 2007 and was 0.3% down compared to 4Q 2007 when looking at purchase-only transactions (not refinancings). Adjusted for real prices, home prices were down nationally 4.6% over all of 2007. Furthermore, every state except Maine reported lower prices in the fourth quarter over the third quarter. The most significant difference between these two indices is the scope of transactions covered. OFHEO covers only confirming mortgages provided by Fannie Mae or Freddie Mac, which OFHEO regulates. S&P/Case-Shiller covers the entire spectrum of transactions.  Are either relevant to you? It depends. It’s like choosing to track the DJIA, the S&P 500 or the NASDAQ Composite as a benchmark for individual stocks. But unlike stock indices and individual stocks, there is no national market for homes. The ideal reading would be for a local neighborhood, and distinguishing trends by price segments and between new and existing homes, but alas such a measure does not exist. So we are stuck with these blunt rear-view oriented metrics.What have we learned about the housing market now from these new reports? Not much. Unfortunately these indices cannot be calculated any faster than the two month lag that exists between the transactions occurring and the indices being released. That makes the data less informative as a pulse of what is really happening, especially across short time frames when change is likely occurring. Housing analysts and researchers know that these indices should be used in conjunction with other measures. Unfortunately there is no perfect measure of home prices that can give you a reliable way to measure period-over-period changes and to do so in a timely manner. What these two reports today confirm is that the fourth quarter of 2007 was dreadful for housing. The credit market seized up, mortgages were hard to come by, and all but the most desperate buyers or sellers sat on the sidelines, so what did transact happened at a discount to the prior quarter and prior year. |
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