Home Values Got You Down? Relax, It’s Just The Case-Shiller Index.

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Standard & Poors released its Case-Shiller Index for the month of January this week. The index is a home valuation tool, measuring the monthly and annual changes in home prices in select cities nationwide.

Home Values Return To Summer 2003 Levels

January's Case-Shiller Index gave a poor showing. As compared to December 2010, home values dropped in 19 of the Case-Shiller Index's 20 tracked markets. Only Washington, D.C. gained. The results were only modestly better on an annual basis, too.

18 of 20 markets worsened in the 12 months ending January 2011.

According to the report, values are down 3.1% from last year, retreating to identical levels from Summer 2003. As a buyer or seller in today's market, don't read too much into it, however. The Case-Shiller Index is far too flawed to be the final word in housing.

The Obvious Flaws Of The Case-Shiller Index

The Case-Shiller Index is flawed in 3 main ways. The first is its lack of breadth. The Case-Shiller Index is positioned as a national index, but its data is sourced from just 20 cities in total. They're not even the 20 biggest cities, either.

To put that "20" number in perspective, the Case-Shiller Index tracks home values from fewer than 1% of the 3,100 U.S. municipalities -- yet still calls the report a "U.S. Average".

I'm not buying it.

A second flaw in the Case-Shiller Index is how it measures home price changes, specifically. Because the data only accounts for "repeat sales" of the same home in its calculations, and only tracks single-family, detached property, it doesn't capture the "full" U.S. market. Condominiums, multi-family homes, and new construction are ignored in the Case-Shiller Index algorithm.

In cities like Chicago, condos are a huge part of the market. So what does that say for Case-Shiller's Chicago data?

And, lastly, the Case-Shiller Index is flawed because of the amount of time Standard & Poors requires to release it. Today, it's practically April and we're still talking about closed home resales from January -- which is really a collection of data about homes that went under contract to sell in October -- nearly 6 months ago!

Sales contracts from 6 months ago is of little value to today's home buyer, of course, and that's why Case-Shiller isn't much help.

"Move Up" To Bigger Homes While Home Prices Are Down

Regardless of its flaws, January's data does show that home values continue to sag. As a home buyer, this can be your signal to pounce on a "deal" -- sellers get very, very nervous on news like this. They worry their homes will never sell if they don't sell now.

And, although mortgage rates are rising, rates remains historically low. You can get financing for cheap, plus underwriting queues are moving quickly. If you need to close fast, and you want good mortgage rates, now is an excellent time to make it happen.

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

(Post adapted from Bring the Blog, a blogging service for loan officers and REALTORS®)