Coldwell Banker Premier Realty

More on Repeat Sales Indices


Morgan Stanley Cautions about shift-n-mix, Costar Commercial Index
Posted: August 09, 2010 by John McClelland

We have a bit of a fascination with real estate price indices. This is simply because of the disparity in different measurements. At Market IQ, we tend not to like average prices since averages are sensitive to outliers. However, when we go out with buyers and look for homes, we tend to "feel" the average more than any other number so it does have its utility in describing the market. Medians are useful but imperfect as well since like averages, they are affected by the changing mix of home sold in each sample period, such as size, age, finish level, location.

We find repeat sales measures to be more realistic in explaining the trend since median prices have masked a lot of the same home price changes, especially as builders began making smaller homes on very compact lots. These are indices however so they are a little esoteric for folks who are not numbers junkies. In addition, Morgan Stanley has noted that an increase in the prevalence of short sales, which we find to sell for higher prices than bank owned homes, are causing the Case-Shiller, RPX and Morgan Stanley's own index to jump so severely in some metros that it just didn't seem realistic. The Morgan Stanley analysts question the validity of these measures for looking at national trends (from housingwire).

The Las Vegas area has had enough REO (bank owned) activity to keep pressure down on the indices so we never noticed anything as severe as the changes in the San Francisco trends, for example. I am considering building a "constant quality" index that will attempt to control for whether or not the sale was a short sale, REO or equity seller.

CoStar has also developed repeat sales indices for Commercial real estate. This is a very welcome development and I am glad CoStar has taken this mission since it is certainly not easy work. Previously, we had noted the Moodys/REAL Commercial Property Price Index and it is nice to have an alternative to check against. These indices tend to be a little bit too regionally broad for our local use since our CRE is so related to the gaming industry rather than international trade or manufacturing, however, institutional investors might find this useful.

                                 Source: CoStar.


Sources:

http://www.housingwire.com/2010/08/04/for-investors-sake-morgan-stanley-questions-power-of-home-price-indices

http://www.costar.com/about/article.aspx?id=7719

Loading Comments

 Archives


Real Estate Links Our Domains