L.A. home prices down 3.3%

L.A. home prices have fallen by an average of 3.3% over the past year, according to the Standard & Poor's Case-Shiller home price index -- which we consider to be the most reliable measure of home price trends.

The report, which covers price changes through May, shows:
--Nationally, the level of home price appreciation has now been declining for 18 months in a row, since December 2005.
--The 10-city composite shows year-over-year price declines of 3.4% in May.
--“At a national level, declines in annual home price returns are showing no signs of a slowdown or  turnaround,” says economist Robert Shiller.

Why we like Case-Shiller: it is the only index we know of that even tries to track the price of a typical single-family house in a given city. It uses "matched pairs" of price data -- that is, if a specific house sold twice in a period of time, it uses those two data points to measure price change.

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Photo Credit: Reuters

Comments

[BetterVillage]

Isn't it a little too convenient that one of the companies blamed for being instigators of this mess - they were purportedly giving credibility to companies and securities that didn't deserve it in the form of credit ratings - are the ones who are providing the most accurate data now. The numbers are flying. The advice is flying. But none of it coming from geniuses that we can trust. One guy who might have been able to help in a genuine way passed away in 1988. Remember Richard Feynman, who they brought in to investigate the Challenger disaster? He seems to have nailed the systemic problems that led to the explosion, but his findings were only inlcuded as an appendix to the official report. There are more Feynmans out there. Can you conspire to figure out this mess in a macro way?

From Wikipedia:(notice the focus on perception and risk)

To illustrate the organizational problems of safety awareness, Richard Feynman attached a personal appendix to the Rogers Commission Report. It is equally relevant to the CAIB report. In it he says;

"It appears that there are enormous differences of opinion as to the probability of a failure with loss of vehicle and of human life. The estimates range from roughly 1 in 100 to 1 in 100,000. The higher figures come from the working engineers, and the very low figures from management. What are the causes and consequences of this lack of agreement? … we could properly ask "What is the cause of management's fantastic faith in the machinery?"
The CAIB report found these same differences of perception, and that they contributed to the accident. Both reports also examined the ability of schedule pressures to influence safety related design decisions."

http://en.wikipedia.org/wiki/Columbia_Accident_Investigation_Board
http://en.wikipedia.org/wiki/Richard_Feynman

[lefty]

the article is confusing because it discusses 'declines in price growth rates' as opposed to simple price changes.

[andeeeeeee]

Given the recent speculative house-flipping rage that has occurred over the past few years, I wonder how accurate using the same house as a reference point would really be. Certainly a house that was purchased, flipped, and sold six months later for $100K more would skew the data at least somewhat.

[Pat]

House flipping is a real transaction. It was probably an important part of the data. You don't dismiss it just because it was unsustainable in the long run. This is a measurement of real sales prices, not a theoretical estimate of sustainable prices.

[andeeeeeee]

Pat, I agree that flipping is a "real transaction" as you state. However, a house that is sold several months later for a significantly higher price after substantial renovations is not exactly the "same" house that sold earlier. Substantially re-modeling a house and selling it for a much higher price will yield a different appreciation rate than you would get from looking at a house that sold, was lived in, and then re-sold with no (or only minor) upgrades having been made. I would certainly think the latter would give you a more accurate comparison. However, with no simple way to differentiate between flipped houses and non-flipped houses, I would suggest that the dramatic increase in pre- and post-flip sales prices could potentially have some impact on the "average" appreciation/depreciation, and thus the analysis might suggest that the real estate market is slightly rosier than it is--i.e., that actual sales prices of houses that have not undergone renovations may cumulatively be less than the analysis indicates. Having no idea what percentage of flipped vs. non-flipped houses is, though, I can only speculate.

[Cal]

Flips within 6 months time are taken out of Case/Shiller:
High turnover frequency. Data related to homes that sell more than once within six months are excluded from the calculation of any indices. Historical and statistical data indicate that sales made within a short interval often indicate that one of the transactions 1) is not arms-length, 2) precedes or follows the redevelopment of a property, or 3) is a fraudulent transaction.

http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf

OFHEO index is matched pair data as well, but it goes off of conforming loans (417k max, fannie and freddie) so it is pretty useless for the LA area.

Case/Shiller is pretty good, its biggest limitations is its breadth (few markets).