The headlines are buzzing with the release yesterday of the Case-Shiller Home Price Index numbers, which show a year-to-year overall drop of 18% in home prices in 20 major metropolitan areas.
The local flurry is over Seattle prices, which for the first time show a double-digit yearly drop (10.2% from October ’07 to October ’08.)
Here are some things to consider when looking at these (or any) numbers:
- Everybody’s got some spin factor.
In my opinion that includes the regular newspapers, NAR (the National Association of Realtors) and yes, subconsciously, probably even me. 
Example 1 – The Media:
The headline yesterday in the Atlanta Business Chronicle was “Home price indexes drop 18 percent in October.” They no more dropped 18% in October than in April or any other month since October ’07 . Each month of the year contributed one month’s worth of data to a total yearly drop of 18%.
A more correct headline would have been “Home price indices show an 18% year-to-year drop in October.” (But would that have gotten as many clicks? Probably not.)
Example 2 – The Industry:
In May 2008 NAR Chief Economist Lawrence Yun predicted that most of the country was due for an upward turnaround in the latter half of 2008. According to the Inman News article, he also predicted that markets like Miami, Las Vegas and Phoenix could see prices go up as much as 50 percent over the next five years.
While that last ship has not yet sailed, we know the 2008 prediction was totally optimistic.
- There’s usually a story behind the numbers.
Here’s some information from the NAR website that I think is worth noting. They say:
Case-Shiller coverage is limited to 20 major markets, many of which have experienced the nation’s worst housing sales and housing price declines. In contrast, the NAR monthly index provides nationwide coverage of all housing markets, and is supplemented by quarterly coverage of 150 markets.
and,
Case-Shiller places a larger weight on higher priced homes in each of the 20 cities covered, skewing the results toward the upper end of the market. The NAR index covers all markets with computations based on actual market experience.
Copyright National Association of REALTORS®, Reprinted from REALTOR.org with permission.
I realize that NAR is real estate industry-friendly, but those seem like valid points to me. The NAR Existing Home Sale report shows an 11.3% drop in home prices nationwide from October ’07 to October ’08.
And remember:
- October 2008 numbers reflect closings of many homes that went off market during September’s stock market chaos.
Sure, there are many other factors at play, but that certainly had some effect. One of my own home buyers got a hefty discount on a home (in addition to a big discount during the original negotiations) simply because the stock market tanked before the home inspection and he was able to push for a big monetary concession that the seller felt was still preferable to putting the home back on the market.
For the record, I’m not saying that NAR is necessarily right. But I know how easy it is to massage statistics, and frankly nearly everyone does what they can to promote their own angle.
Let’s at least be aware of that, read past the headlines, and try to get the most objective information possible.
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