Why Home Prices Are Better and Worse

A home is worth exactly what someone is willing to pay for it.

We could end it right there, but for the fact that in the middle of the most closely-watched housing recovery in history, the sheer number of monthly and quarterly home price reports has proliferated to the point of almost weekly readings.

The trouble is that they each use different data sets and methodologies.

That's why this week we heard national home prices were up 8 percent from a year ago in May, and we also heard that home prices were down 0.1 percent from a year ago. It all depends on what you're watching and how you're watching it. The National Association of Realtors uses a median home price, so it depends heavily on what type of home is selling at any particular time. The Realtor's report, as I explained yesterday, showed a huge bump up because it includes sale prices of distressed homes, and far fewer distressed homes sold in May, so the numbers were skewed toward higher-priced, non-distressed homes.

Now Lender Processing Services tells us that home prices are essentially flat. LPS effectively excludes distressed sales from its numbers, and it uses repeat sales to gauge prices, not a median method, and so it's not subject to biases associated with changes in the composition of houses selling. It tracks prices across five different price tiers as well, and shows them all moving at approximately the same rate (up around one percent month to month).

"There may be reason to be cautiously optimistic, since we've seen now seen three consecutive months of minor appreciation," notes Kyle Lundstedt, managing director of LPS Applied Analytics. "LPS tracks 130 million properties in its data, and over the last several months we've seen a very typical seasonal change in the mix of the houses selling towards the higher end of the price spectrum."

S&P Case Shiller, which comes out with its April report next Tuesday, also uses repeat sales. It is a three month running average which does include sale prices of distressed properties. That's why that report is showing prices still down around 2.5 percent nationally.

As we've noted so many times on the Realty Check, while this housing crash was national, the recovery is increasingly local. Home price recovery will vary state to state, city to city and even neighborhood to neighborhood, depending on employment, the overhang of distressed homes, and the overall confidence of local homeowners and potential buyers.

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