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What The December 2010 Case Shiller Report Says About DC (And What Case Shiller Really Measures)

December 28, 2010  |  by Jonathan Miller

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It’s that time of the month to ponder the meaning of the Case Shiller report…and it showed more weakness than economists expected. The chart above shows a handful of markets but if you want to see all 20 markets tracked in their full glory, here is my version of the spaghetti-like results.

Created by noted economists Robert Shiller and Karl Case, the S&P/Case-Shiller Home Price Indices has become one of the most widely-followed US housing indexes. However, it is not a great way to measure the current state of your local housing market for a number of reasons.

1. The indices were actually created to enable to trading of housing derivatives for investors to hedge volatility via Wall Street, not for consumers to understand current market conditions – they have yet to gain traction with investors.
2. The December report uses October closings which generally represents contracts signed from June, July, August and a little bit of September.
3. Case Shiller is a “repeat sales” index comparing the closed sales to the last sale of the same property. Sales are discarded if no prior sale is found. Market trends are based only on closings that have a prior sale record in their database. The index does not consider changes in home size or condition.
4. It is a single family housing index and does not include condos, co-ops and new developments.

In other words – Case Shiller usually reflects a prior market, unlike the results that RBI releases every month with a cutting edge (translation: useful) report announcement coming soon!

The December Case Shiller report results are actually a snapshot of last summer’s housing market just after the expiration of the federal tax credit for housing on April 30th. The tax credit was designed to artificially drive sales activity higher to help stabilize housing prices across the US.

In the table below, the Washington DC metro area was the best performing market in the country in the December report with a 3.7% year over year increase and with a 0.2% (essentially unchanged) month over month change. This is largely due to the regional economy’s linkage to the Federal government that has kept unemployment lower than most major housing markets across the country [see table below].

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