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.”
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