Recent reports offer differing pictures of the housing market, which can make attempts to get a clear grasp of local values confusing for the average consumer. While most statistics show the local Washington area housing market performing well ahead of the nation, numbers vary. Unfortunately, local and national media rarely help in clearing up this picture. Consider the following recently reported statistics:
- Clear Capital reports Washington area prices rose 4.7% over April 2011 and gained 3.6% over the previous rolling quarter. Nationwide, home prices fell 1.0% from April 2011 and 0.2% from the previous rolling quarter.
- CoreLogic reports DC home prices rose 2.8% over March 2011 compared to a nationwide rise of 0.9%.
Why such vast disparities in housing statistics? Why, for example, is the latest Standard & Poor's/Case-Shiller Home Price Index showing a different picture, one of price declines both locally and nationwide? The answer is simple: methodology.
All of the top housing reports -- Clear Capital, CoreLogic, Real Estate Business Intelligence, S&P, Delta Associates, etc. -- use different methodologies and research models which define different geographical areas, using different time frames, and property types. The result? Important differences in their results and many ways, some contradictory, to view the local and national housing markets.
Geographical area impacts the numbers. Ever hear the expression "real estate is a local phenomenon"? Consider these important questions: is a given housing report using a local zip code, city, county, the Washington Metropolitan Area, or the Mid-Atlantic region as the basis for its analysis? Do competing reports define all such areas the same or use different proprietary models? For example, each may define Washington as a Metropolitan Area or a Core Based Statistical Area but within different boundaries using different groups of zip codes or counties.
Delta Associates and Standard & Poor's/Case Shiller supposedly anyalyze the same Washington area. Closer examination of methodology reveals an important difference.
- Delta's quarterly Housing Outlook distinguishes between the "Core" (DC, Arlington, Alexandria), "Inner Ring Suburbs", and "Outer Suburbs" making a review of the data simpler.
- S&P/Case-Shiller's Home Price Index uses a methodology defining Washington as a vast "Metropolitan Statistical Area" stretching across three states from West Virginia, through the District of Columbia, and into Maryland. Housing market statistics for such a vast area bear little relevance for an individual consumer seeking clarity on local home values.
Sample size is another methodological component that escapes scrutiny. Often these reports use geographical models so large their statistics have little bearing on a given consumer's actual neighborhood. Perhaps more importantly, such models have little relevance to a lender seeking to appraise a property for refinance or purchase. Geographical models will produce very important differences in housing data and must be understood in order to gain insight into your local housing market.
Property type is one factor often overlooked by consumers and left unexplained by the media. To illustrate: the Standard & Poor's/Case-Shiller Home Price Index analyzes single-family home sales only. S&P maintains separate indices for condo/coop sales in Boston, Chicago, Los Angeles, New York, and San Francisco but no such analysis exists for the Washington area. On the other hand, Real Estate Business Intelligence tracks statisics for all property types in the Washington, DC area: townhouses, semi-detached, single-family detached, and condos/coops. In sum, the owner of a Capitol Hill condo has little use for housing statisics on Loudoun, VA single-family homes. Consumers are well advised to bear this distinction in mind when evaluating the numbers.
Property status can also impact resultant statistics. Some reports include distressed home sales (short sales and foreclosures) while some others do not. The inclusion of distressed home sales in an entire metropolitan area or region has little relevance to an individual consumer's neighborhood or search area. It is important to understand how property status greatly impacts report results, often skewing the numbers lower in order to include unrelatable statistics with little impact on a consumer's investment or neighborhood. Put another way, a buyer seeking to purchase a condo in Shaw has little use for housing reports including single-family home foreclosure statistics in Upper Marlboro, MD. Similarly, a homeowner in southwest Washington attempting to monitor a property's value is not affected by short sales in Manassas, VA.
Time frames and report dates also vary, making comparison between analyses somewhat cumbersome. While some housing reports evaluate the market on a monthly basis others measure the market quarterly or annually, still others like Clear Capital use "rolling quarters". Some report numbers from the previous month, others wait several months before publishing their latest data. Ultimately, these factors will inhibit comparsion between reports for context and impact your perception of your local housing market.
The point is to think critically when evaluating data. For example, with regard to S&P/Case-Shiller's data keep in mind the following points:
- Property Status - The S&P/Case-Shiller Home Price Indices include distressed properties (i.e. foreclosures, short sales), skewing home prices and sales statistics lower.
- Report Date - The S&P Indices are published on a 2-4 month lag to offset delays in sales price data from county deed recorders.
- Property Type - The index reports single-family/detached home prices only; condo and co-op sales statistics are not included for the Washington area.
Lastly, keep in mind that S&P/Case-Shiller defines Washington, DC as an extremely large area. While this may be efficient for data collection and percentage calculation it has little use for buyers and homeowners seeking to establish value within a given area. S&P includes the following areas for the Washington market:
- Washington, DC
- Maryland - Calvert, Charles, Frederick, Montgomery, and Prince Georges Counties
- Virginia - Alexandria City, Fairfax City, Falls Church City, Fredericksburg City, Manassas City, Manassas Park City; Arlington, Clarke, Fairfax, Fauquier, Loudoun, Prince William, Spotsylvania, Stafford, Warren Counties
- West Virginia - Jefferson County
The bottom line is that as a consumer one must evaluate all reports critically. There's very good information out there as long you know how to read the data, interpret the methodology, and evaluate the numbers in a way that helps you monitor your local housing market.
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