Thursday 27 September 2012

Real estate valuation. Case, Shiller and Weiss

When I started in real estate, in the early 1990s, the Case-Shiller-Weiss index was the best thing since sliced bread. For a fee, I could buy a subscription to a program that would give me a fair market value price for a specific property based on repeat sales data. I still did a CMA on my own, before reading what the program spit out.

By the middle of the 1990s, the C-S-W Index started to fail me, because the areas I was working in did not have sufficient data for the program to work. I had report requests come back saying that C-S-W could not set a price because of “economic noise” in the data (or something like that.) Yet, Case-Shiller-Weiss Index was still the best info in town.

This is how it works (in an oversimplified way): Market patterns are found by tracking houses that had sold more than once, calculating the rise or fall of that house’s sale price over the years. By crunching the information about the rise or fall of many houses in an area, the local trend can be identified. Back in the 1990s, the print edition of the Boston Globe had a little chart of the Case-Shiller-Weiss index for the Boston area on the front of the Sunday Real Estate section. It was a nice little colorful graph with a line wiggling up and down as the seasons changed. At some point the graph went away.

Standard and Poor’s bought the Index in 2002. It is still one of the indices that most people look to for real estate information. Here’s the site. If you want to see when the bubbles came and broke, you can see it there.

The limitations to what is now called the S&P/Case–Shiller U.S. National Home Price Index are twofold:

The data is limited to houses that have sold. A small percentage of houses change hands every year. (The index also covers only single family housing.)

The index does not account for changes in condition of the housing that is being resold. Some of it has been improved and some has been neglected.

Despite these limitations, this way of looking at housing trends has been tried and true and trusted. It has been the go-to information source for me and my peers for many years.

Source: http://www.boston.com/realestate/news/blogs/renow/2012/09/real_estate_val_1.html

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