Devil in the Details: True Representation of the Housing Market
Housing reports have been flowing in with the great news on how the real estate market is improving. Most recently, NAR’s July report boasted homes sales rising 9.5%, the strongest increase since January 2006.
This good news is reaching too high many analysts are now saying. Reports like NAR’s above paint an unrealistically optimistic picture when the market is more conservatively improving. NAR adjusts for the sizes of home sold, but the price index does not. Because of this, when high end homes sell, the market reports swell disproportionality to the actual market. This in not to say the real news is bad—only misrepresented.
In fact, the market for those expensive homes has seen a big turnaround this year. In August, the sales of high-priced homes valued at between $250,000 and $750,000, as well as of those over $1 million, increased by some 25% on the year, according to the NAR. “The higher end of the housing market is playing catch-up,” Wachter says. “People are getting the prices they want.”
With this trend, lower end homes are not moving as much. This means that the bulk of people who hear the rants and raves about the recovering market are not yet feeling the recovery. Economists urge homeowners to look at the reports critically to get a feel for where your market is. The Case-Shiller index is one they recommend.
For those with a deeper interest in real-estate minutiae, there are other key differences in the house price reports. The NAR measures prices on a monthly basis and gives estimates for the previous month, while Case-Shiller bases its estimates on a three-month moving average and has a two-month time lag. The NAR covers 156 metro areas; Case-Shiller only tracks 20 cities. Case-Shiller tracks price changes of the same properties, which gives a more accurate picture, says Sofia Song, vice-president of real estate site StreetEasy.com. “But from an investor’s perspective both reports are worth reading.”