Are Home Prices Headed Up or Down?

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Here are two headlines that appeared in print last week:

LA Times: Case-Shiller Home Price Index Hits New Low

Forex: CoreLogic: Home Price Index Increased 0.7%

In the Los Angeles Times story, David Blitzer, chairman of the S&P index committee, was quoted as saying:

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. Home prices continue on their downward spiral with no relief in sight.“

In the second article, Forex quotes Mark Fleming, chief economist for CoreLogic:

“While the economic recovery is still fragile and one data point is not a trend, the month-over-month increase based on April sales activity is a positive sign.”

The Case Shiller and the CoreLogic price indices are both very well respected. How can they come to seemingly opposite conclusions? There are two reasons for this.

1. Each Index Has a Different Lag Time

Each report is actually looking at data from different periods of time. Therefore, they are not technically comparing apples to apples.

The Case Shiller Index Methodology:

The CSI is reported with a two-month lag and is based on three months of data. For example, data released in January 2011 was for the three months ended November 2010 (November, October, September 2010).

The CoreLogic Index Methodology:

The CoreLogic HPI is published on approximately a 5 week lag from the end of the data collection period. For example, the CoreLogic January HPI will be published in mid-March.

2. The REO Saturation Level Has Changed

The Case Shiller report covered data several months old. This data would contain transactions where prices were negatively impacted by the large number of distressed properties on the market

However, inventories of distressed properties have decreased recently because the process of foreclosure has slowed. The CoreLogic data, being more current, would have fewer homes impacted by distressed properties. Therefore, prices would be higher.

The difference in time table helps explain some of the conflict in the conclusions of the reports. Once the banks again start to introduce more distressed properties to the market, prices will again be negatively impacted.

Bottom Line

Prices of properties in your region will not be determined by the different price indices. Prices will be determined by the supply of homes available in ratio to the demand for those homes in your area. Whether you are buying or selling, check with a local real estate professional to help you analyze these numbers.