This week, the S&P/Case-Shiller home price index was published, showing that the index declined 2% in the 3rd quarter of 2010, and that nationally home prices were down 1.5% compared to one year earlier. It’s interesting data, and from a macroeconomic viewpoint probably useful, but I am skeptical of national averages and indices in a business that is 100% local.
As I have discussed extensively, the Texas housing market has behaved very differently throughout this recession and housing crisis than California, Florida, Arizona, and Nevada. Moreover, the Austin/Central Texas market has consistently been stronger than even Texas averages. While S&P’s selection of cities used in their index may be representative of the nation in some way, I note that only one of the metro areas in the Case-Shiller 20-city composite is in Texas. Seven of the index metros are in California, Florida, Arizona, and Nevada — those that suffered most in recent years. Atlanta, Cleveland, and Detroit are also part of the index, so 50% of the composite index is based on the performance of markets that were hardest hit by the housing downturn.
Among the twenty cities in the index, five showed year-over-year increases in home price index. Three of those — Los Angeles, San Diego, San Francisco — have been prominently featured in the news for the magnitude of home value declines, so even 4% to 5% annual increases, while absolutely welcome, still leave much room until a “recovery” can be declared. The index in Washington, D.C., while far from the experience of those California cities, remains about 25% below its peak in 2006, and the fifth of these metros, Boston, is still down about 15%.
Dallas, on the other hand, after seeing its home price index decline 1.9% year-to-year, remains only 5.5% below its pre-recession peak.
Separately, I will provide a closer look at the Austin/Central Texas market — volatile in its on right, and far from immune to the effects of the recession. For now I’ll just salute S&P for attempting to compile a useful national index of home values, and caution prospective home buyers and sellers about reading too much into this national data.