Found my own answer. Here's a snip from an article by Rich Toscano:
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Yale professor Robert "Irrational Exuberance" Shiller and his colleague, Wellesley professor Karl Case, have taken an even bigger step in the right direction with a house price measurement they recently developed. The Case-Shiller Home Price Index (HPI) measures market price changes based on repeat sales of individual homes. A given home sale price, in other words, is only compared with the price at which that very same home last sold. By gathering enough of these same-home comparisons, the Case-Shiller HPI can model the price movements for an overall market without being affected either by changes in who's doing the buying or changes in the quality of homes they are getting for the money.
The Case-Shiller HPI even attempts to account for home improvements. If a certain home has changed in price more than other comparable homes, Case and Shiller assume that some of the price change was due to a property-specific factor, not market conditions, and that particular home is given a lower weight in their calculations. The problem with this approach is that if a whole lot of homeowners are making improvements (see late 2004/early 2005), then that will seem like the norm, and owners who aren't making improvements will be given a lower weighting. The HPI calculations in this case would mistake widespread home improvements for an increase in market-wide pricing power.
The HPI has similar problems with the effect of concessions and the resulting inaccuracy in recorded purchase prices. A home sale with a concession that is way out of line with what's happening in the market will be given a lower weight. But if a majority of sellers are granting concessions -- and this could very well be the case right now -- then home sales without concessions will be given a lower weight instead. Like the other home price measures, the HPI probably has a tendency to overstate home prices during a buyers' market (like today, when concessions are frequent) and to understate home prices during a sellers' market (like the panic-buying days of 2003-04, when concession demanders were shown the door).
The treatment of improvements and concessions may be problematic, but the HPI's focus on same-home sales solves some of the problems afflicting the size-adjusted median and even more suffered by the plain-vanilla median. It only measures movements in single-family homes, not condos, but that's a tolerable tradeoff to get a more accurate price indicator. Unfortunately, the HPI numbers for a given month don't become available until almost two months later, which is why I've stuck to the more timely size-adjusted median for the monthly updates. We need all the analytical help we can get, however, so from here on out I will add the Case-Shiller HPI to the list of items we follow at the Nerd's Eye View.
Rich Toscano hosts the blog "A Nerd's Eye View" about housing and economic issues in San Diego. You can e-mail him at rich.toscano@voiceofsandiego.org or send a letter.
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Yale professor Robert "Irrational Exuberance" Shiller and his colleague, Wellesley professor Karl Case, have taken an even bigger step in the right direction with a house price measurement they recently developed. The Case-Shiller Home Price Index (HPI) measures market price changes based on repeat sales of individual homes. A given home sale price, in other words, is only compared with the price at which that very same home last sold. By gathering enough of these same-home comparisons, the Case-Shiller HPI can model the price movements for an overall market without being affected either by changes in who's doing the buying or changes in the quality of homes they are getting for the money.
The Case-Shiller HPI even attempts to account for home improvements. If a certain home has changed in price more than other comparable homes, Case and Shiller assume that some of the price change was due to a property-specific factor, not market conditions, and that particular home is given a lower weight in their calculations. The problem with this approach is that if a whole lot of homeowners are making improvements (see late 2004/early 2005), then that will seem like the norm, and owners who aren't making improvements will be given a lower weighting. The HPI calculations in this case would mistake widespread home improvements for an increase in market-wide pricing power.
The HPI has similar problems with the effect of concessions and the resulting inaccuracy in recorded purchase prices. A home sale with a concession that is way out of line with what's happening in the market will be given a lower weight. But if a majority of sellers are granting concessions -- and this could very well be the case right now -- then home sales without concessions will be given a lower weight instead. Like the other home price measures, the HPI probably has a tendency to overstate home prices during a buyers' market (like today, when concessions are frequent) and to understate home prices during a sellers' market (like the panic-buying days of 2003-04, when concession demanders were shown the door).
The treatment of improvements and concessions may be problematic, but the HPI's focus on same-home sales solves some of the problems afflicting the size-adjusted median and even more suffered by the plain-vanilla median. It only measures movements in single-family homes, not condos, but that's a tolerable tradeoff to get a more accurate price indicator. Unfortunately, the HPI numbers for a given month don't become available until almost two months later, which is why I've stuck to the more timely size-adjusted median for the monthly updates. We need all the analytical help we can get, however, so from here on out I will add the Case-Shiller HPI to the list of items we follow at the Nerd's Eye View.
Rich Toscano hosts the blog "A Nerd's Eye View" about housing and economic issues in San Diego. You can e-mail him at rich.toscano@voiceofsandiego.org or send a letter.
