Case-Shiller update

It’s been a while since I’ve taken a hard look at the Case-Shiller data. I don’t really like the data for three reasons – 1) it only measures existing homes being resold from one period to another (they call it a paired sale), 2) it doesn’t include new homes (and thereby the improvement of the index number when a poor house is replaced by an improved one), and 3) real estate is LOCAL – how the market in Denver does has absolutely zero to do with the market here in Dallas. People are too obsessed with the data and always talk about “the market”…what’s the “housing market” doing…. the “market” is down. Well, not really.

The only thing I think the data is good for is to compare how, in general, based on caveats #1 and #2 above, your market is doing as compared to the rest of the country.

My suspicion from watching the home and lot prices as closely as we do, is that the data will show that we’ve been bouncing along a bottom for a couple of years. At least in Dallas, that is. I don’t care about anywhere else. I suspect and have read that the homebuyer tax credit also produced a bump in prices that was followed by a return to the bouncing along the bottom.

So, I quickly dusted off my Excel skills, and viola! updated the three charts I like to use. The first is an absolute return of the Dallas area vs the the two composite indexes starting in January 2000 through the latest data point of May 2011. The second is the same, but with a period from January 2008 to now. The third is just from January 2010 to now. All three charts are below.

In summary, they all fall in line with what I thought had been going on. Dallas never had a speculative bubble as compared to the rest of the county. Since the 2006/07 peak, our prices are down like everyone elses, but not by nearly as much.

Since 2008, Dallas has lost 3.5% versus the 22% of the whole index.

Since 2010, Dallas is in line with the index with a loss of 2.5%.

What is interesting - and what I don’t think most people recognize – is that if you measure from the start of 2000, with the exception of Detroit and Las Vegas, all other 18 city areas have had POSITIVE appreciate in their real estate prices. During that time, the average appreciation across all 20 cities is 2.9%. I think the lesson here is simple – home ownership is a investment where the long-term return will not be much different than inflation. If you are buying and hoping to flip – that’s not investing, that’s speculating. You can, and often will, get burned by speculating. Go look at that third first chart and see if you can spot the speculation. There are obviously other benefits to home ownership, but that’s for another post.

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