Today is Case-Schiller day, and the media once again has the housing chicken littles running madly for cover. 

We’ve opined our spin on the Case-Schiller Index in past posts, and are working on a detailed article looking at the Case-Schiller Indices (all three parts), their derivation, highest and best uses, and how they’re sometimes misused for our September newsletter.  Should be interesting, and we’ve learned quite a bit just researching the article. 

The CSI report out today listed price change data for 20 individual markets, and the two smaller indices – the 10 – and 20-City Composites.  The smart folks over at Calculated Risk, who are graphing masters by the way, have laid out a couple of very interesting pieces of data graphically for your enlightenment. 

The first is a simple representation of the nominal indices dating back to 1987 for the Composite 10, and the origin of the Composite 20 in January 2000.  The Composite 10 is off 10.4% annual rate and 19.8% from the peak; the Composite 20 is off 8.9% annual rate and 18.4% from the peak.  Brutal perhaps in some regards; given the markets tracked – we’d guess many of you would also say “no surprises”. 

The second graph is quite interesting, and has sparked a fair amount of discussion over on Calculated Risk today – it’s a look at the annualized monthly price changes for the Composite 20 since January 2006.  Clearly the rate of monthly price decline has slowed.  Our supposition is that, given the markets studied, the change in the rate is due to seasonal influences (fairly profound in single family for the spring and summer selling season), though that impact could have been countered to some degree by the constipation in the credit markets.  We need to see what this graph looks like in December after the seasonal slowing of sales during the fall and early winter. 

Shifting gears a bit – here’s a quick paraphrase of a post I made today about the CSI data on a real estate investor’s forum today; note the forum is typically read by less experienced investors with “run for cover” responses every month when the CSI data is posted.  

The Case-Schiller Index (CSI) as you know is actually made up of three sets of data, a 10-city composite, a 20-city composite, and a much larger one.  Their monthly data releases (like today’s) are based on the 10 and 20 city composites.  The CSI is oft criticized as its coverage scope in terms of markets is quite narrow, and the media typically mistakenly assumes that the CSI data represents the entire housing market. 

Here’s an example of why the media’s assumption noted above is wrong.  We’ve been researching Houston for an article we’re writing.  I and a couple of my team were on the phone with brokers in Houston for the better part of a day recently.

Averaging the broker reported single family median price data, including July data, we were told the median Houston home price has risen to $174,900.  If that is accurate, then the median price has risen an average of 7.5% annually over the past three years, and is up 15.2% 2007-2008 so far.  Impressive. 

One of the most trusted sources for real estate data in Texas is Texas A&M’s Center for Real Estate Research.  They report that Houston’s median home price was $151,400 as of June.  If that is accurate, then Houston’s median home price has risen an average of 2.3% annually over the past three years, and is only down 0.2% 07-08. 

My point - while the CSI data is elegantly constructed, it is indeed very limited in scope in terms of market coverage and does not represent what’s happening in all markets.  Given information we were provided recently (over thirty brokers) - Houston is looking far better than any market in the CSI data released today.  Taking a macro-view of real estate is a dangerous exercise for investors - you have to drill down market by market to have things make sense, and to find the real treasures out there today. 

That’s preaching to the emerging market investor choir, I know, but it is an interesting example of a market not included in the CSI Composite data that is humming along nicely….

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