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Posted January 6, 2016
in Real Estate News

Case-Shiller Index Shows U.S. Home Values Up 36% Since 2012

Case-Shiller Index: Annual change in home values, October 2014-2015

Home Values Rising Quickly This Decade

Home values continue to rise nationwide.

According to Standard & Poor's Case-Shiller Index, home values made another year-over-year increase in October, highlighting what many of today's buyers have already discovered the hard way -- it's getting harder to find "cheap housing".

Since reaching a bottom in 2012, home values have climbed 36% nationwide.

Higher home prices may be one of the reasons why more than 3-in-10 home buyers are currently first-timers. With current mortgage rates down and home rents up, in many U.S. cities, it's less costly to own a home than to rent one.

Plus, with¬†an abundance of low- and no-downpayment mortgages -- including the recently-introduced¬†HomeReady‚ĄĘ mortgage,¬†which allows just 3% down -- there are more ways to get into a home¬†cheaply than during any period this decade.

Click to see today's rates (Feb 6th, 2016)

San Francisco, Denver, Portland Up More Than 10% Annually

Standard & Poor's recently released its October 2015 Case-Shiller Index.

The Case-Shiller Index tracks home price changes both from month-to-month, and from year-to-year, in select cities nationwide.

Tracked cities include San Diego, California; Los Angeles, California; and Phoenix, Arizona.

As compared to the year prior, November home values were higher in all 20 tracked markets, led by 10.9 percent gains in San Francisco, California; Denver, Colorado; and, Portland, Oregon.

Seattle, Washington was the next biggest gainer, adding 8.8 percent from the year prior.

The "weakest" of the Case-Shiller Index cities was Chicago, Illinois. Home values in the lakefront city rose just 1.3 percent over the prior 12 months. Values in Washington, D.C. rose just 1.7%.

However, use caution when referencing the Case-Shiller Index as part of your personal "buy or rent" decisions. The monthly index is flawed and may push you toward improper conclusions.

The index's first flaw is its most obvious -- its limited sample set.

Click to see today's rates (Feb 6th, 2016)

Flaw 1 : Not Enough Cities Included

The Case-Shiller Index tracks 20 U.S. metropolitan markets and brands itself a national index. Yet, according to Wikipedia, the U.S. is home to more than 3,100 different municipalities.

This means that the Case-Shiller Index tracks fewer than one percent of all U.S. cities. Furthermore, its 20 tracked cities tracked aren't even the nation's 20 most populous.

Four of the 10 most populous U.S. Cities -- Houston, Texas; Philadelphia, Pennsylvania; San Antonio, Texas; and San Jose, California -- are notably absent from the Case-Shiller Index 20-City Composite.

By contrast, smaller cities such as Minneapolis, Minnesota (#48) and Tampa, Florida (#55) are not excluded.

The "national" Case-Shiller Index, in other words, is not very national at all.

Even on a city-by-city basis, the Case-Shiller Index gets it wrong. This is because the index lumps disparate city neighborhoods into a single, city-wide reading.

In Chicago, for example, some neighborhoods definitely out-gained others.

Values in Lincoln Park and Lakeview change differently from values in Wicker Park and Bucktown, just as values in Manhattan and Brooklyn differ in New York City.

Flaw 2 : Too Few "Home-Types" Included

A second Case-Shiller Index flaw is its methodology.

The index considers only "repeat sales" of the same home in its findings, and those homes are required to be single-family, detached properties. This means that condominiums, multi-family homes, and new construction are not included.

In some cities, these "excluded" property types account for a large percentage of total monthly sales.

New York City meets this criteria with its heavy concentration of condos and co-ops, as does Chicago, Boston, and, to a lesser extent, Los Angeles whose footprint extends into Orange County.

With its limited property type set, Case-Shiller captures only a portion of the overall housing market.

Click to see today's rates (Feb 6th, 2016)

Flaw 3 : Data Too Aged To Be Accurate

A third Case-Shiller Index flaw is the "age" of its data.

Because Standard & Poor's publishes on a 60-day delay, the Case-Shiller Index is reporting on a housing market that no longer exists. But, the data is even older than that.

Home sales tracked by the October Case-Shiller Index are those which actually closed in October. However, October closings are typically the result of contracts written in July, August, and September.

This means that the Case-Shiller Index is reporting on sales from last summer -- half a year ago!

It's now 2016 and the U.S. housing market looks different from how it did six months ago. Mortgage rates are different, global markets are different, and even the Federal Reserve's monetary policy is different.

This six-month lag time may not matter much to economists and policy-makers and other people taking a long-view of housing economics. But, to an individual buyer or seller of a home, that time lag renders the index nearly useless.

What Are Today's Mortgage Rates?

The Case-Shiller Index will never be your "real-time" real estate indicator. However, it can highlight valuation trends, and the trend is toward higher values nationwide

Take a look at today's real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Click to see today's rates (Feb 6th, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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