You may be aware that there is now an index of home prices across the country. It’s the invention of a couple of professors who have been working on this formula since the 1980s. They are widely quoted and the Index has been a center piece for many articles related to the housing market and economy.
The way it works is they take the sales activity and Market Analysis of sales prices and put them in a spreadsheet. They take the averages of these averages to determine trends. It is by far the biggest hoax ever attempted in the housing market and yet it is gaining popularity.
It came into prominence with the decline in housing values after the 2007 economic melt down. It showed the 11% decline in the Index. California, Florida, and Nevada were the hardest hit with 30% declines in a lot of areas. The Index is an average however so it showed a more generalized decline in prices.
Doctor Shiller has promoted the theory that housing prices are driven by a group think mentality. If the population believes prices are going up they go up, if they think they are declining, then they decline. His premise is based on a public perception so I find it odd that he would be in charge of an Index that could, in theory, drive public perception. It’s kind of in line with the National Association of Realtors issuing press releases about the economy.
The Case-Shiller Index is a fine historical data record of the housing market. The problem today is that the Index has had an increase in home prices for the past four months. It is widely thought that the Home Buyer Tax Credit has driven buyers into the market. Now with the Index rising the question will be if that group think mentality is, in fact, raising prices again.
My opinion is that the Index is dangerous. It is a broad stroke of a wide variety of market places across the country. Both buyers and sellers may point to the Index as an indication of home values. One month the Index can be up and three months later the Index can be down. The Index numbers really have nothing to do with your particular market, but it can create a perception.
In the next couple of years I think people will see the Index for the historical data it can provide. In the mean time there is a lot of reliance on Doctor Shiller’s opinion for news stories. It’s just something to watch, but be careful.
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Achieving a fast sale of a property is hard in the current climate. If you know where to look it may still be done.