Florida’s state Realtor association will soon begin publishing a home price index that’s based on repeat sales, rather than median home price, and the National Association of Realtors has a similar project in the works.
The National Association of Realtors and most state and local Realtor associations currently track median home prices. But indexes that track median home price don’t necessarily provide an accurate picture of what’s happening to the value of housing, Florida Realtors said.
That’s because changes in median home price may reflect a change in the mix of housing sales, rather than an underlying trend in housing values. An increase in the proportion of sales at the lower end of the market, including distressed property sales, may push down median home price, for example. Conversely, an an increase in median home price may reflect increased sales of larger, more luxurious properties, rather than appreciating home prices, the trade group noted.
To address such issues, the Standard & Poor’s Case-Shiller Home Price Indices and the Federal Housing Finance Agency’s Home Price Index track repeat sales or refinancings of the same property.
But Realtors have questioned the accuracy of the S&P Case-Shiller index, and FHFA’s Home Price Index tracks only single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.
The new Florida Realtors Real Estate Price Index will use data from the Florida Department of Revenue to chart home prices for the state and metro areas during the last 17 years.
Florida Realtors will post more information about the index and how it works next month on the research page of FloridaRealtors.org. Soon after that, the group says it will begin publishing a statewide real estate price index, with indexes for individual metro areas available only to Realtors who provide login information.
"This is really the first of its kind in the nation," Florida Realtors Chief Economist John Tuccillo said in a statement. "No other state has a real estate price index that’s this comprehensive, and we’re pretty proud of it."
NAR is working on its own version of a repeat sales price index, but the the task "is quite a bit bigger" on a national scale, Realtor Magazine reports.
"It’s an ambitious and complicated undertaking, and it’ll take some time for the database to be robust enough to really give a clear picture of what’s happening, but the effort is promising," Realtor Magazine Senior Editor Robert Freedman says of the Florida Realtors’ home price index.
One challenge facing anyone building a home price index is removing anomalies like home price increases that stem from renovations or additions, or price drops due to storm damage or non-arm’s-length transactions.
Indexes based on repeat sales typically suffer from a time lag, because of the time it takes before data on closed sales data is available from public records.
Florida Realtors is currently inputting 2011 data that’s only recently been made available. Going forward, the index will be updated on a quarterly basis using state MLS data, which will be reconciled with actual 2012 numbers once the state’s data becomes available next year, Tuccillo told Realtor Magazine.
In December, NAR said it had overestimated home sales by more than 14 percent since 2007 because of a drift in an adjustment made to MLS data to account for sales that take place outside of MLSs. In publishing "rebenchmarked" home sales statistics going back to 2007, NAR said previously reported estimates of median home prices and months’ supply of inventory were not affected by the error.