Heed The Case-Shiller Index Flaws (December 2010 Edition)

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Standard & Poors released December's Case-Shiller Index this week. The Case-Shiller Index is a home-value tracker in select U.S. cities. The report shows home prices down 2.4% between November and December .

Housing : A "Differing Story Around The Country"

Case-Shiller representatives assessed the findings as “a weak report”, citing deterioration in 19 of 20 tracked markets; only Washington D.C. showed improvement, climbing 0.3 percent.

According to the report, home values are off more than 30% from the market’s June 2006 peak.  Values in some markets -- Cleveland and Las Vegas, specifically -- have rolled back 11 years to 2000's price points. That's a big drop.

However, it's important to recognize that the Case-Shiller Index is wildly imperfect; its methodology geared more toward economists and less toward everyday homeowners like us. The Case-Shiller is not meant for individual consumption.

There's 3 big reasons why.

Heed The 3 Case-Shiller Flaws

Every economic indicator is flawed in some respect, but in the case of Case-Shiller, the flaws are glaring and obvious. It's important that we recognize what they are.

First, the Case-Shiller Index reports on a 60-day delay. That's hugely significant because today is February 23 and we’re discussing composite data from the period of October-December 2010. That's means this is data from from before (1) the economy shifted to a net jobs gainer; (2) the Federal Reserve pledged another $600 billion to bond markets; and (3) mortgage rates shot off like a rocket.

The data used by the Case-Shiller Index is irrelevant to today's housing market. Especially with evidence that the future is already looking brighter.

Second, the Case-Shiller Index doesn't cover the whole country. It's sample set is limited to 20 cities only. This means that most U.S. home sales -- including those occurring in Philadelphia and Cincinnati -- are specifically excluded from the Case-Shiller Index findings.

This leads to Flaw #3, then. All real estate is local.

No matter what Case-Shiller says about the U.S. housing market as a whole, what matters to your local market is what’s happening in your local market. Each neighborhood has its own economy and that’s something that will never be captured in a national report.

"Moving Up" While Prices Are Down

With December's weak Case-Shiller report, calls of a "double dip" in housing are growing louder. As a home buyer, this should be your signal to pounce -- sellers get very, very nervous on news like this. They worry their homes will never sell.

And despite steadily rising mortgage rates, pricing is still historically low. You can get financing for cheap and underwriting queues are moving quickly. If you need to close fast, and with low mortgage rates, now is an excellent time to do it.

To get your mortgage application in-process,. I answer all my own emails and will get you rate quotes right away.