As with any product, whether it is a piece of art or a fine automobile, the price of it will be what the market will bear. The U.S. real estate market has seen more play-by-play analysis than at any other time in history and the results of such scrutiny are ironically more unpredictable due to variations in analysts’ respective yardsticks. The National Association of Realtors, for example, uses median home prices that depend on the types of homes being sold at any given moment. So, for those wondering whether prices are really going up or down, the quickest way to answer is to put that knowledge in the broader context of market location, home type and pre-crisis value. For more on this continue reading the following article from TheStreet.
A home is worth exactly what someone is willing to pay for it.
We could end it right there, but for the fact that in the middle of the most closely-watched housing recovery in history, the sheer number of monthly and quarterly home price reports has proliferated to the point of almost weekly readings.
The trouble is that they each use different data sets and methodologies.
That’s why this week we heard national home prices were up 8% from a year ago in May, and we also heard that home prices were down 0.1% from a year ago. It all depends on what you’re watching and how you’re watching it. The National Association of Realtors uses a median home price, so it depends heavily on what type of home is selling at any particular time. The Realtor’s report, as I explained Thursday, showed a huge bump up because it includes sale prices of distressed homes, and far fewer distressed homes sold in May, so the numbers were skewed toward higher-priced, non-distressed homes.
Now Lender Processing Services tells us that home prices are essentially flat. LPS effectively excludes distressed sales from its numbers, and it uses repeat sales to gauge prices, not a median method, and so it’s not subject to biases associated with changes in the composition of houses selling. It tracks prices across five different price tiers as well, and shows them all moving at approximately the same rate (up around one percent month to month).
"There may be reason to be cautiously optimistic, since we’ve seen now seen three consecutive months of minor appreciation," notes Kyle Lundstedt, managing director of LPS Applied Analytics. "LPS tracks 130 million properties in its data, and over the last several months we’ve seen a very typical seasonal change in the mix of the houses selling towards the higher end of the price spectrum."
S&P Case Shiller, which comes out with its April report next Tuesday, also uses repeat sales. It is a three month running average which does include sale prices of distressed properties. That’s why that report is showing prices still down around 2.5% nationally.
As we’ve noted so many times on the Realty Check, while this housing crash was national, the recovery is increasingly local. Home price recovery will vary state to state, city to city and even neighborhood to neighborhood, depending on employment, the overhang of distressed homes, and the overall confidence of local homeowners and potential buyers.
This article was republished with permission from TheStreet.