Basket Case-Shiller

Basket Case-Shiller

At least American investors are showing some balance. After 12 years obsessing about skyrocketing property values, there is now an equal – albeit masochistic – fascination with watching prices plummet again. Who can blame them? Tuesday’s data for November were an air crash. Compared with a year before, the S&P/Case-Shiller Home Price Index fell by a fifth, a record annual decline.

But, as on the way up, numbers need to be treated with caution – there may be no need for everyone to pack their bags just yet. For a start, the numbers differ widely across the map: prices are down only a few per cent compared with last year in Denver but have fallen by almost a third in Las Vegas. In addition, the headline S&P/Case-Shiller indices are for single family homes – condos, co-ops, apartments and other multi-family dwellings are excluded. The condo index for New York, for example, showed only a 3.7 per cent decline in prices for November.

There are other adjustments in the data. The S&P/Case-Shiller index is derived by comparing the sale price of a home with the last sale price of the same home. If that house has been renovated, sold within six months, or if changes in its price seem out of step with surrounding houses, it is excluded from the data. A house with a new pool, therefore, may not have fallen as much as the index for that city suggests.

Finally, as transaction volumes fall, house price data become lumpier and less reliable. For example in Los Angeles, the 9,448 homes sold in November that could then be “paired” to previous sales amounted to only a third of the number in previous years. That, however, may not be a good sign. Like banks refusing to write down bad loans, homeowners may be hoping that prices soon recover. They would do better not to wait.