Who really knows if the price is right?


If you follow real estate at all, you know that there are 3 pricing indexes that get quoted fairly regularly – S&P Case Shiller, FHFA, and Corelogic HPI.  Are they good for tracking home prices as a buyer or seller?  My belief is no – a professional Realtor is your best option.  All of these indices are flawed from what they track, to the timeframe in which they use to track data, to what their data sources encompass, to how much weight is given to price points and to what areas are used to gain their pricing policies.  Why is this important to know you may ask?  Well, it is where your clients, sphere, and potential clients hear in the media about housing prices.  You need to be able to speak intelligently about them and convey the true story about housing prices.  By doing so, you will position yourself as a trusted resource in real estate by providing value to those whom you know.  Now, let’s take a closer look at each pricing model so you can give the right advice when you are helping a client buy or sell a house.

Here is what you may not realize about the S&P/Case Shiller Home Price Index:

  • The index was developed for Wall Street to hedge the housing market, not as a monthly consumer metric
  • Based on a 3 month moving window of closed sales which washes out the annual seasons in housing
  • Lags contract signing dates by 5-7 months
    • Translation:  Q1 2011 report = Q3 2010 Contracts
    • Based on prices, not sales activity where sales activity may be trending
    • Comprised on single family sales only.  Excludes: condos, co-ops and new development sales
    • Only represents 20 cities nationwide
    • Washington DC covers a large area of which includes:
      • Calvert, MD
      • Charles, MD;
      • Frederick, MD
      • Clarke, VA
      • But these areas also included:
        • Warren, VA
        • Jefferson, WV

This is NOT what most readers of the Washington, DC data understand the coverage area to be.

The CSI reported with a two-month lag and is based on three months of data.

  • For example, data released in January 2011 was for the three months ended November 2010 (November, October, and September 2010).

 Understanding the FHFA HPI:

  • The House Price Index is based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac – only. All mortgage transactions on single-family properties are included – refinances included but no condos, coops or multifamily are considered.
  • Conventional mortgages are those that are neither insured nor guaranteed by the FHA, VA or other federal government entities.
  • The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancing on the same properties.
  • A full release is provided every three months – not exactly timely.
  • The HPI includes indexes for all nine Census Divisions, the 50 states and the District of Columbia.

The best of the rest – CoreLogic.

The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales.  The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of a monthly home price indices and median sales prices available covering

  • 6,507 ZIP codes -  58 percent of total U.S. population
  • 611 Core Based Statistical Areas -  86 percent of total U.S. population
  • 1,119 counties -  83 percent of total U.S. population and
  • Located in all 50 states and the District of Columbia.

 The CoreLogic HPI is published on approximately a 5 week lag from the end of the data collection period.

How does the FHFA HPI differ from the S&P/Case-Shiller Home Price indexes?

  • The S&P/Case-Shiller indexes only use purchase prices in index calibration, while the all-transactions FHFA HPI also includes refinance appraisals.
  • FHFA’s valuation data are derived from conforming, conventional mortgages provided by Fannie Mae and Freddie Mac. The S&P/Case-Shiller indexes use information obtained from county assessor and recorder offices.
  • The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for more expensive homes have greater influence on estimated price changes than other homes. FHA’s index weights price trends equally for all properties.
  • The geographic coverage of the indexes differs. The S&P/Case-Shiller National Home Price Index, for example, does not have valuation data from 13 states. FHA’s U.S. index is calculated using data from all states.

As you can see, it is nowhere near how we value properties but it is where most of Americans get the idea of housing values.  We have more accurate, up-to-date information that we can provide clients.  Let your clients know why these indexes are made available – CSI, for Wall Street and hedge funds;  FHFA HPI, to track valuations on Freddie and Fannie products to assess risk;  and lastly, CoreLogic’s HPI, for banks to assess risk when lending money.  None of them are used to determine the value of a home when selling or buying – let others know the facts and become a source for valuable real estate information.  Get it?  Got it?  Good!

Now, go sell something!

Don’t be spooked by the media!

It must be Halloween because all of the scary news out there is about real estate.  All over the place you see, read or hear about foreclosures, double dip declines in pricing, the widespread number of delinquencies that will result in defaults and even more declining house values.  It is all so scary – unless – you know the truth!


Here is what the media sent out this week:


S&P Case-Shiller Index Records Widespread Declines in Home Prices  Home prices across the country slipped in August, according to data release by Standard & Poor’s Tuesday.  Home process decreased in 15 of the survey’s 20 metropolitan statistical areas on a month-to-month basis. Guess what happens when you read further?   Only Chicago, Detroit, Las Vegas, New York and Washington D.C. posted what S&P called “marginal improvements” in home prices over July.  Hey, at this point I will take “marginal improvements” over declines any day.  As we have been reporting – our prices are stable in most areas, increasing in many others and showing modest declines in just a few locations.  Here is what could have been their headline:

S&P/Case-Shiller 10-city composite remains up 2.6 percent from August 2009 levels.  In addition, the 20-city composite is 1.7 percent above a year earlier. Have no FEAR – it’s not that bad.  But why speak about the good news when you can haunt people with bad news?  Here’s what they continue to say “We still fear that the continued weak demand and high supply will push process gradually lower over the next 12-18 months” said Paul Dales, U.S. economist for research firm. “The current unfavorable balance between demand and supply is certainly consistent with a sustained fall back in prices” which means if houses don’t sell prices will fall – basic economics.  Here’s what I say, “If interest rates remain low, prices remain stable and consumer confidence comes back into the housing market – prices will increase further”.  The National Association of Realtors just announced that 8 out of 10 people believe now is a good time to buy.  If they believe it is, why aren’t they?  It is because of negativity of the national media and how it is portrayed to the consumer.

So, no matter whom you believe or where the housing market is going there are opportunities for success

  • Interest rates are better then phenomenal
  • Prices are stable in most of our making  it attractive to buy whether for owner, occupants or investors
  • Speaking of investors – the rental market is strong and prices will comeback which is what long term investors are looking for when buying real estate.
  • The housing market will rebound and both prices and rates will increase so we have a limited timeframe in which to take advantage of this opportunity.

Fannie Mae just announced that they are going to be looking into the foreclosure practices of many of the lenders they service which means that the release of their properties onto the market will be delayed and so will settlements.  The question is – for how long.  We will have to wait and see as well as note how many properties will be affected.  Stay tuned for more details about Fannie Mae.

Oh! One more good piece of news came across the wire…New home sales are also up 6.6% – good news is here and will hopefully continue to come.

Think long term, plan long term and educate long term and you will be successful long term.   Get it?  Got it?  Good!


Extra, Extra…there is some Good News in Real Estate!

Good news is that the Case-Schiller Home Pricing Index reflects that housing prices are up in the Washington area for July, the 4th straight month of gains – good news…there is talk about prices not making a comeback to 2006 price levels until 2014 – bad news…nationally, home sales were down 27.2% from June- bad news…but our numbers were only 18.4%, nearly 9% better than the rest of the country – good news.  Days on market is down – good news.  Inventory levels continue to maintain and even slightly decrease…not really bad or good news either way, just an FYI.

Well, enough of that silly little exercise.  However, I did that to illustrate a point – the market is what you make it and you can spin it the way you want so why not be positive.  The other point is, if you head is spinning, so are consumers.  It is our responsibility to get in front of people and explain to them that our market is different.  In our area, people are always buying or selling – we have a 2.6 month supply of houses – your job is to find them.  We can talk about the negative sales numbers or the positive sales prices – choose to move people forward and not keep them down!

More good news, Virginia was once again ranked extremely high as a business friendly state, #2 over all nationally, as ranked by CNBC.  To illustrate this point, Northrop Grumman selected Fairfax County for its headquarters, MeadWestvaco is relocating to Richmond, Pfizer has agreed to stay in Richmond, Southern University is relocating jobs to VA, and Thermo Fisher Scientific is expanding as is Evatran.  Northern Virginia boasts the lowest unemployment rates in the country and Northern Virginia has seen a drop off in foreclosures where the rest of the state has seen an increase.  In addition, Gables Residential is building 120 apartments near Fair Oaks after sitting on the property since 2007 as they see a need now for more housing.  STG has also inked a deal for 100,000 square feet in Reston and plans to grow from a $220,000,000 company today to a $1 Billion company by 2016 – keep an eye on them!

Now for the numbers!  Inventory levels are down to just under 7,600 – contracts continue to come in at about the same pace weekly – mid 600’s and month’s supply remains in the mid 2’s with rentals still posting strong numbers at a 1 month supply.  Interest rates continue to be phenomenal as well.  So, as we have said for several months now and was reconfirmed at the broker owner meetings in Denver…it is an investors market!  Find’em, sell’em, rent’em, manage’em and then sell’em again…what a theory and business model for the next few years!  Get in the game or get out.  Get it?  Got it?  Good!

Now, go sell something!

It’s all so confusing…

There is so much confusion in what is being reported about the real estate market it is understandable why so many people are unsure of what to do in regards to housing.  Information recently reported from Standard and Poor’s is just one reporting outlet where mixed signals are being sent out to consumers.  In one report, they claim that housing prices have increased for 8 consecutive months – this is through Standard and Poor’s and then through the Standard &Poor’s/Case-Shiller pricing index they say prices have dropped for the 4th consecutive month – absolutely insane.  How can one agency say prices are going up and down at the same time and not believe they are sending a mixed message to consumers and in turn hurting the housing recovery? 

For the record, The Washington Examiner reported that the Washington area was the strongest in the Nation as we have the right fundamentals in place.  Low unemployment, and scarcity of land are factors they sight in their article – couple this with low inventory, low housing starts, great rates, the home buyer tax credit and relatively affordable prices and we have a better than average housing market.

We too have been hearing, reading and expecting rates to increase when the Fed eases out of and stops buying mortgage backed securities (which has been happening by the way) yet rates have stayed low – conflicting news, but good news none the less.

We watch the market very closely everyday here locally and it is important to understand from a professional what is happening in our market and why.  We want to reiterate that our housing market in Northern Virginia is robust, resilient and is rebounding nicely today.  Our absorption rate remains high, prices are increasing in some areas and we have buyers out looking to capitalize on the remaining days of the home buyer tax credit.  To learn more about what is happening with your home or to learn how you or someone you know can take advantage of the tax credit, call us today!