Standard & Poorâ€™s released its September 2011 Case-Shiller Index this week. The index tracks home price changes in select cities between months, quarters, and years.
The Case-Shiller Index for September showed drastic devaluations nationwide.
As compared to August, home values fellÂ throughout 17 of the indexâ€™s 20 tracked markets, led by Atlantaâ€™s 5.9% drop. On an annual basis, home values have now returned to early-2003 levels.
That said, home buyers and sellers in the North Center area should be cautious when referencing the Case-Shiller Index. The index is a flawed metric and, as such, can lead to improper conclusions about the housing market overall.
The Case-Shiller Indexâ€™s first flaw is its most obvious â€” its limited sample set.Â
According to Wikipedia, there are more thanÂ 3,100 municipalitiesÂ nationwide. Yet, the Case-Shiller Index includes data from just 20 of them in its findings. These 20 cities account for fewer than 1% of all U.S. cities, and just a small percentage of the overall U.S. population.Â
The â€œnational figuresâ€ arenâ€™t really national, in other words.
Even on a city-by-city basis, the Case-Shiller Index gets it wrong.
By lumping disparate neighborhoods into a single, city-wide result, the index ignores the relative strength of one area at the expense of another. In the aforementioned Atlanta, there are areas that fared much better than Septemberâ€™s -5.9% as cited by Case-Shiller.Â Some areas fared much worse.
A second flaw in the Case-Shiller Index is itâ€™s methodology for measuring changes in home value.Â The index only considers â€œrepeat salesâ€ of the same home in its findings, and those homes must be single-family, detached property. Condominiums, multi-family homes, and new construction are not included.
In some cities â€” Chicago, for example â€” â€œexcludedâ€ property types can account for a large percentage of total monthly sales.
And, third, the Case-Shiller Index is flawed by â€œageâ€.
Because Standard & Poorâ€™s publishes on a 60-day delay, the Case-Shiller Index is reporting on a housing that no longer exists. Sales that closed in September are based on contracts written from June-August â€“a time-frame thatâ€™s 6 months aged.
The best use of the Case-Shiller Index is as an analysis tool for economists and policy-makers interested in the long-term trends of U.S. housing. The index does very little good for every day buyers and sellers, unfortunately.
For up-to-date, accurate market data, talk to a real estate professional instead.