September 2

Why We’ll Replace the Case-Shiller Home Price Index for Our Series, “The Most Splendid Housing Bubbles in America”

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The series, started in 2017 to document visually the surging home prices amid the Fed’s interest rate repression, will now get bigger and better.

By Wolf Richter for WOLF STREET.

We’ve been using the Case-Shiller Home Price Index since about 2017 to document visually metro-by-metro the surge in home prices that was starting to occur at the time, amid the Fed’s interest rate repression that had started in 2008. We called this series, “The Most Splendid Housing Bubbles of America,” and we’re still calling it that today to visually document this phenomenon that went into high gear during the free-money era between March 2020 and mid-2022 when prices were nearly irrelevant because money was nearly free, with mortgage rates below 3%.

But we’re going to switch data sets. The Most Splendid Housing Bubbles we published on August 27, when the Case-Shiller data was released, was the last one using the Case-Shiller data.

We like the Case-Shiller methodology of “sales pairs” a lot. But it comes with three massive drawbacks that we’ve gotten really tired of, and now there are alternative data out there that move roughly in parallel with the Case-Shiller but don’t come with the drawbacks.

The three big drawbacks are:

It’s limited to just 20 metros in the US and excludes even huge metros such as Houston and Philadelphia.
It lags so far – 3 to 4 months – as to become essentially irrelevant for current market observers.
It is not available in dollar-prices, but only index values (the index for each metro was set at 100 for the year 2000), which makes it impossible to compare price levels in different metros.

The Case-Shiller data are three-month moving averages of sales whose property deeds had been entered into public records months earlier. For example, the Case-Shiller data that were released on August 27 were three-month moving averages of property deeds that had been entered into public records in April, May, and June. The deals were made well before then. So the lag by the end of August, when the data was released, was roughly three to four months.

The Case-Shiller index was developed by a small group of economists — Karl Case, Robert Shiller, and Allan Weiss — and was made commercially available in 1991 by their startup, Case Shiller Weiss. The company was acquired by Fiserv in 2002. CoreLogic then acquired the index business from Fiserv in 2013. Today, the index is published by S&P Global and is called the S&P CoreLogic Case-Shiller Home Price Index.

The main thing that changed was that the index used to be set at 100 for 1990; and that was later shifted to 2000, which is still the case today. The index was neither expanded to encompass more metros, nor was the data gathering and publication accelerated to reduce the lag. So, adios.

The “raw” Zillow Home Value Index.

Zillow makes available many different combinations of its data in its Database of All Homes.

We will be using the backward-looking Zillow Home Value index or ZHVI. Zillow also produces forward-looking estimates of future home values (the Zillow Home Value Forecast or ZHVF), which we will not be using.

The ZHVI is based on millions of data points in its Database of All Homes, including historical transaction prices of closed sales from public records, MLS, brokerages, real-estate agents, and individual households across the country for properties. It includes pricing data on off-market deals and for-sale-by-owner deals.

In Texas, sales prices are confidential and cannot be disclosed and are not disclosed in the public records. So Zillow’s listings of homes in Texas don’t show transaction prices, unlike in other states. But Zillow has this pricing data through its membership in the local Realtor Associations and MLS. And members are allowed to use this data to show market information, such as price indices. In addition, Zillow uses the other data in its Database of All Homes.

The ZHVI data comes in many different cuts:  We will use:

“Raw” instead of “seasonally adjusted three-month average,” because the raw data reacts the fastest to market changes, though it can be a little more volatile.
By Census Metropolitan Statistical Area (MSA), instead of City or County (Case-Shiller also uses metros but they don’t always conform to the MSAs).
“Typical homes” for each MSA, meaning the weighted average of the middle third of homes that sold in each MSA.
Of single-family houses and condos combined.

For example, the “raw” ZHVI for the Austin MSA shows the “typical home value” (middle third of homes) in dollars. It includes single-family houses and condos. This July data was released earlier in August. In about two weeks, we’ll get the August data. The price of the “typical home” dipped by 0.4% in July from June to $460,000, is down by 4.6% year-over-year, and by 18.9% from the peak in June 2022.

Case-Shiller doesn’t have Austin among the 20 metros it covers, doesn’t show prices, and for the 20 cities it does cover, we’ll have to wait patiently to see the July price movements.

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The post Why We’ll Replace the Case-Shiller Home Price Index for Our Series, “The Most Splendid Housing Bubbles in America” appeared first on Energy News Beat.

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