Home prices rose in about half of U.S. metropolitan areas during 4Q 2010 according to the National Association of Realtors (NAR), but home prices declined in all 28 major U.S. metropolitan areas during 4Q 2010 according to the Case-Shiller index reported by the Wall Street Journal. Who to believe?
first tuesday take: A median price, which is the point in the data where half the prices fall above and half fall below, is a mathematical abstraction that tells us nothing about a region’s actual pricing activity. It is a phantom price that cannot be assigned to any single home.
Because the percentages cited by NAR are based on median numbers, any increase in home prices is most likely inaccurate. The rising median data NAR is reporting is likely just a reflection of the fact that prices for more expensive homes are declining, which perpetuates a greater volume of high-tier home sales than their less expensive counterparts, and artificially drives up the median price.
NAR and its associates are notorious for their ever-optimistic reliance on the lazy reporting of median numbers to support the conclusions they draw about the real estate market, which often reflect their own agenda. [For more information regarding median numbers, see the August 2010 first tuesday article, Really, a decrease in underwater homes?]
Agents and brokers must carefully research the statistics upon which they rely for real estate market information. Both first tuesday and the Wall Street Journal base their analyses on the more accurate Case-Shiller index to analyze home pricing trends. The most important information California real estate professionals will acquire comes from data reflecting the unique market characteristics of their local housing demographic. [For more information regarding December 2010 home prices, see the February 2011 first tuesday article, Home prices drop, catching trade union off guard.]
Re: “Explaining the Realtors’ Rosy Housing Data” from the Wall Street Journal