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Personally, I am not a fan of the U.S. housing index that was created by Karl Case and Bob Shiller back in the 1990s. That said, it is a highly watched gauge and worthy of commentary.
To précis this piece, it’s worthwhile discussing briefly exactly what is tracked and how it is put together. The indices are calculated from data on repeat sales of single-family homes; that is the sale of the same house over time (it therefore ignores the new construction market completely). The Case-Shiller index family includes 20 metropolitan area indices and two composite indices as aggregates of the metropolitan areas. These indices are three month moving averages and data is published with a two-month lag.
My biggest concern with the Case-Shiller report is really a local one. I am based in Seattle which is one of the “cities” within the index. My issue is that Case-Shiller defines Seattle as the tri-county area – encompassing King, Snohomish, and Pierce Counties. In my opinion, this is far too large a geography to have any real relevance. The markets in these three counties vary significantly from each other, so to define what is taking place in Seattle using sales activity in Tacoma and Everett seems nonsensical at best.
So, what’s happening today? Well, as the explanation above states, there is a two month delay by the time the report is released, so the question really isn’t what is happening today, but rather what was happening for the three months between March and May of this year.
Overall, prices rose by one percent from April which is a positive sign. Prices rose in 16 of the cities; they fell in Detroit, Las Vegas, and Tampa, Fla., and were unchanged in Phoenix. The rise in May for Case-Shiller came after the index edged up a fractional 0.6 percent in April, which was the first time prices were higher in eight months. In Portland the index increased by 1.2% and, in Seattle, by 1.1%. We saw increases in all of the Californian markets, with San Francisco rising by 1.8%, Los Angeles by 0.5% and San Diego rounding out the three with a 0.2% increase.
Does this mean that we are out of the woods yet? I do not think so – at least in the way that this index is calculated. Seasonal factors are likely big contributors to the recent increase and I would like to see a few more months’ data before I am prepared to say that we are well into a recovery.
