This data puts December’s “home values” at the levels of early 2003.  Now everybody just stop.

Case-Shiller is an awful report.  Here are a few reasons:

• The Cities:  Case-Shiller uses 20 cities.  That’s less than 1% of the cities listed in Wikipedia.  Wikipedia also has figured out that Chicago, for example, has neighborhoods.  So in spite of using a small subset of cities, Case-Shiller still doesn’t break the data down past the level of “Chicago.”
• The Measurement:  Case-Shiller only uses “repeat sales” of the same home and only uses single-family detached homes.  On my block in East Village, there are three or four homes that would qualify if they were sold.  My block isn’t even in the study right now.  Condominiums?  Not included.  Townhomes?  Not included.  The 2-, 3- and 4-flats?  Not included.  Continuing that Chicago example, it means that our “city average” will disproportionately exclude the condo-heavy neighborhoods from the South Loop north to Wrigleyville.   The stat doesn’t help you if you live in Lincoln Park or Wicker Park.
• The Age:   Case-Shiller reports on a 60-day delay.  That means that the “December” market was really data from October.  That doesn’t help forecast today’s market.
• The Reality:  36% of homes sold in December were distressed sales.   Those were resales of an existing home and the change in price is compiled to create our Case-Shiller Index.

Statistics are extremely valuable.  However, the value of my home is as related to S&P’s Case-Shiller Index as the value of a particular stock is to S&P’s 500 Index.  There is some correlation, but I look up my portfolio value at the end of the day, not the S&P alone.

If you want to play macroeconomics, look at home supply and buyer traffic.  If you want to look at the value of your home, call your real estate agent.

In general, prices were down 0.7% from August.  The generalities don’t really fit in this case.  What an odd report.   In the year-over-year review of September’s data, we’re seeing a number of wild differences in appreciation leading us back to that 0.7% average.  

I like and dislike this report in almost equal proportions.  It’s an interesting snapshot, but the methodology is flawed.  It has three major problems that prevent the data from being of value to an individual home buyer or seller. 

First, I’m looking out my window at the first real snow of the year and yet I’m just now looking at the September data.  When the temperature has changed 50+ degrees before you see the data, it’s outdated.   In the past two months, the economy has shifted to a net jobs gainer and consumer spending is ticking up.  This wasn’t part of September’s housing market, but employment is critical to housing recovery. 

Second, Case-Shiller is limited to just 20 cities.  It misses major markets like Houston and counts many post-manufacturing metro areas that are losing population to the southeast.  It’s hard for prices to go up when population is going down.

Third is the most important one:   Real estate is local.  I cannot buy a home that is indexed against the general prices in Chicago.   I buy a specific home and my price, as well as future value, is influenced by what is happening in that local neighborhood.  By my office in Ravenswood, I’m seeing new water mains left and right, heavy reinvestment and construction.   Pick another neighborhood, maybe one without any new investment or any current construction.  It will look like two radically different real estate markets.  This makes sense, because they are two radically different real estate markets. 

Each neighborhood has its own housing economy.   Some rise, some fall, but they all move eventually.  If I haven’t said it enough on this blog, I’ll say it again:  Real estate is local and a qualified real estate agent is a local expert.

Mortgage rates squeezed out narrow improvements last week.  After a mortgage rate rally during the Monday, Tuesday and Wednesday trading sessions, a sell-off on Thursday and Friday erased the gains.

At the close of the week, conforming and FHA rates had improved slightly.

The economic news was fairly limited last week.  The main driver in mortgage rates was the currency market.

Mortgage rates are very closely tied to the U.S. dollar.  Since mortgage bonds are repaid in U.S. dollars, the value of the dollar directly influences how attractive these mortgage backed bonds are to investors.

More demand for bonds raises prices which, in turn, lowers rates.  Bond prices and bond yields move in opposite directions and this explains the pattern of rates last week.  Monday-Wednesday, the dollar was stronger.  Moving through Thursday and Friday in advance of the G-20 meeting, the dollar sold-off, thus pushing rates higher.

This Week’s Interest Rate Predictions

We should return to a data-driven week.  There is substantial reporting on housing and housing is a key part of the ongoing economic recovery.

Here’s what is on tap:

• Monday : Existing Home Sales
• Tuesday : Case-Shiller Index, Consumer Confidence, Home Price Index
• Wednesday : New Home Sales
• Thursday : Initial and Continuing Jobless Claims

Mortgage rates are still near the all-time lows and it is highly unclear as to whether they’ll stay this low or start rising.   Once they do reverse higher, it’s unlikely that they’ll fall back down.

However, despite the improvement, July’s Case-Shiller Index showed weaker results as compared to prior month.

• More cities posted year-over-year reductions in home values.  In July, it was 50% of cities compared to just 15% in June.
• More cities posted month-over-month reductions in home values.  In July, it was 35% of the cities surveyed compared to just 5% in June.

There are three reasons why this is a better tool for economists than it is for home buyers:

1. Case-Shiller is delayed by 60 days.  It is a great snapshot for what was happening in July.  It is not so great at forecasting the actual home buyer and home seller negotiations occurring today.
2. Case-Shiller is very limited in which cities are included.  It only polls 20 cities, ignoring large cities like Houston and Philly, but including Tampa.
3. Case-Shiller remains an index, somewhat reflecting national and metropolitan-area trends, but it has no capability to compare Wicker Park and Lincoln Park.

The overall picture remains fairly positive with regards to home values.  To get a better idea of the value of a particular home or neighborhood-level statist, consult a local real estate agent.

So, what are home values doing? According to issuing agency, the Federal Home Finance Agency, the June’s values dropped fell 0.3 percent in June and values are down a total of 1.7% over the past year.

So, if you are a homeowner and/or home buyer, which model is right?   Most likely, both are irrelevant.

While these are the most widely utilized statistical measures of housing, they are not good statistical samples.

Let’s look as Case Shiller first.  It is 20 cities.  They aren’t even the 20 biggest cities.  Case-Shiller represents a “comprehensive look” at 9% of the total US population.   Aside from it being a small group, it further lumps in the metro in aggregate.  So, if you are looking at home values in Lincoln Park or Wicker Park, how does a composite view of Chicago help identify your particular home on your particular street?

The Home Price Index tracks home sales in every city, in every state.  After that, the HPI falls off in terms of having any widespread use.  It only includes loans backed by Fannie Mae or Freddie Mac.  That means it excludes jumbo loans and FHA mortgages.

Think about that in context of Chicago mortgages.  FHA is far and away the most condo-friendly product in the market these days.   By excluding all but Fannie and Freddie loans, you’ve just excluded the majority of the recent condo sales in Chicago.   It also excludes any jumbo mortgages, capped at $417,000 on a 1-unit property here.  The Home Price Index starts out with a wide geographical sample, but then eliminates a significant percentage of the loans.   When FHA mortgage market share goes up, the reliability of the HPI goes down.

If you are looking to trade housing and housing related stocks, a look at Case-Shiller or the HPI can be helpful in forecasting builder confidence.  If you’re looking to buy or sell a home, there is only one report that I would trust.  It’s the one that I’d get from a real estate agent.  The market conditions will vary between the West Loop and South Loop, even if the national reports correctly identify them both as being in the Chicago metro statistical area.

There are drawbacks to any of these “national home value” figures and Case-Shiller is no exception.  For starters, the “news” is about June’s results and the last 60 days have been lukewarm at best.  We’ve seen a dip in Existing Home Sales, New Home Sales, and builder confidence is extremely low.

Still, the index does have its place.  It is the most widely-followed, widely-used, private-sector housing tracker.  It influences policy decisions and gives Wall Street insight on the economy.  Things aren’t perfect, but they’re better.  That’s a really good start.

This is not indicative of a categorical market recovery and the Case-Shiller analysts were pretty fair in their press release. The market as a whole is flat versus October of last year.  Still, there was some data worth looking at.

1. 13 of the 20 tracked cities are showing home price improvement year-over-year
2. Former foreclosure-leader, San Diego, has now shown 13 straight months of improvement
3. San Diego, San Francisco and Minneapolis are showing double-digit annual growth

These are all good signs.  Case-Shiller is not without flaws.  Notably, the data is limited to 20 cities and includes Tampa, the 54th largest market, while excluding Houston, Philly, and San Jose.  It also is released on a 2-month delay.  So, with August around the corner, Case-Shiller is only now releasing May data.   Like all metro-driven surveys, it also lumps Chicago into a composite value and misses the nuances from South Loop to West Loop and Lincoln Park to Lincoln Square.  Real estate is local, very local.  Case-Shiller is national and not all that comprehensive of a national statistic.

Still, good signs are good signs.   Case-Shiller is great for watching longer-term trends; however, for real-time data, talk to a real estate professional.

The Case-Shiller Index was released yesterday.  It is an index tracking monthly home valuations from select cities and is among the private sector’s most popular home pricing models.

The Index and analysis show that the housing market is gathering momentum.

In the index’s 20 tracked cities:

• 90% improved month-over-month, albeit marginally
• 4% increase in home values year over year
• The two losers in this month’s report, Miami and New York, dipped are off just 0.5% and 1.0% year over year

Perhaps the biggest sign of strength:  San Diego.   San Diego has now shown price improvements monthly for 12 straight months.

I like Case-Shiller for its ability to show general trends.  It has some major flaws.

For starters, it is on a two-month delay.   The market has definitely been improving for the past year.  What we want to see is the May and June data from after the home buyer tax credit surge.

As a Chicago mortgage lender, I don’t mind the cities on Case-Shiller’s list, but it is only 20 cities.  It does nothing to help forecast the price of your lake home in southwest Michigan.  Even within Chicago’s figures, market conditions can be radically different from neighborhood to neighborhood.

It has flaws, but like the government’s Home Price Index, Case-Shiller identifies broader trends in housing that consequently shape government and policy decisions.

Earlier this week, Standard & Poors released its February Case-Shiller Index, a home price tracker for select metropolitan areas. 

Overwhelmingly, home values fell in the 20 markets tracked by the Case-Shiller. Only San Diego showed a modest increase.  The other 19 markets averaged a 1.23 percent decline between January and February.

However, that’s not the story you read in the most papers. Instead, headlines read that home values were up in the United States, citing annualized data.

Unfortunately for active home buyers and sellers, year-over-year data isn’t all that helpful when making a real estate decisions. It’s the month-to-month data that matters. Month-to-month changes in home prices are what defines a housing market. Month-to-month is what sets the tone for contracts and negotiations on a purchase.

The rosier, annualized data published this past week just doesn’t capture the reality of what was the February 2010 market.  And even then, the data is somewhat useless because it’s from February and May will be upon us next week.

Case-Shiller is on a 2-month lag — hardly reflective of the “right now” of real estate in Oak Park.

When you’re looking for real estate data that actionable, consider using sources that are more “real-time”. A real estate agent may be the right place to start.  Because for all the data that Case-Shiller and the other housing indices collect, it can never be as relevant to your individual needs as a well-executed, timely market analysis.

The Case-Shiller Index was released Tuesday and shows an improving real estate market.  When is a 2.5% loss great news?  When it is compared to the 8.7% drop in Q3 of 2009.

According to Case-Shiller representatives, the housing market is “in better shape than it was this time last year,” but some of the summer’s momentum has been lost as many of the markets showed slight declines in value.

What is of note is the markets that didn’t decline — Detroit, Los Angeles, Las Vegas, Phoenix and San Diego.  They led the pack in the beginning of the downtown, now they’re leading the charge as the market recovers.

For a first-time homebuyer, this is encouraging news.  There are some flaws in the Case-Shiller Index that also need to be considered:

1. The data has a two-month lag
2. The sample data is just 20 cities
3. There is absolutely no such thing as a “national home value”—real estate is local

It is still the most widely used private sector housing index and does do a good job showing broader trends.  If housing brought down the economy, the signs are that a full recovery is just around the corner.