The November 2011 Case-Shiller Index was released today.

Here is the San Diego seasonally-adjusted CSI, compared to two other indicators:

It looks encouraging to me. Both of the markers on pricing are acceptable, rates are at all-time lows, and the leading indicator, number of sales, is on the rise.

But the negative soundbites will discourage consumer confidence, thwarting any euphoria building among homebuyers – who, as a result, will be reluctant to pay more than the comps. Sellers who can live with a reasonable price will have no trouble finding a buyer during the next few months.

Case-Shiller HPI: San Diego, CA Chart by YCharts

The Case-Shiller Index for October, 2011 was published today, and the media is swamped with negativity.  CR prefers the seasonally-adjusted; here are both for San Diego:

There’s the soundbite – “prices” are still going down, according to the Case-Shiller Index.

We’ve picked apart their methodology before - today let’s examine how many sales are excluded in their rolling three-month counts. 

They compare the most recent sales price to the previous sales price of existing single-family homes only (no condos).  They then weight the data based on the time interval, and any extreme price changes.  Typically 85% to 90% of the sales pairs receive no down-weighting. 

But they also exclude sales too.

They state that the excluded ‘non-arms-length’ sales pairs are “usually less than 5%” of the total, and that new-builts and flippers could exclude another 0 to 15% of the total sales too. (See pages 8 and 19 here). 

So let’s say that they think 2% to 20% of the actual sales are left out.  Or is it more?

Standard & Poors/Case-Shiller does publish their counts of sales pairs, but they don’t add up:

Their published counts can’t be just the one-month total, because they are way too high.  If their published number is the 3-month total, then they are excluding more than half of the detached sales, according to the MLS count.

Sure, a survey of half of the sales is worthy. But when the index is only moving 1% to 2% per month, it wouldn’t take many of the excluded sales to drastically influence the outcome in either direction. Yet, that isn’t mentioned anywhere – instead, the media uses the CSI like it is a gold-plated AAA-rated fact about “prices”.

Just like with the NAR data, don’t make decisions solely based on what you think the Case-Shiller index says.  The best gauge is the on-the-ground survey done with your own eyes and ears.

David Blitzer and his crooked bow tie make the usual psycho-babble comments on CNBC:

http://www.cnbc.com/id/45475582

“Consumer attitudes have gotten a lot more negative about long-term commitments, and the No. 1 long-term commitment most people in this country made is buying a house,” David Blitzer, chairman of the S&P Index Committee, told CNBC.

Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.  The index has leveled off in recent months and analysts are hoping the market is at least stabilizing.

“Over the last year home prices in most cities drifted lower,” Blitzer said in a statement.

“The plunging collapse of prices seen in 2007-2009 seems to be behind us. Any chance for a sustained recovery will probably need a stronger economy.”

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This was probably the more pertinent comment from the same article:

The number of U.S. homeowners who are underwater on their mortgages decreased modestly in the third quarter, though levels remained high, data analysis company CoreLogic said Tuesday.

The number of properties with so-called negative equity — in which the amount owed on the mortgage exceeds the property’s value — was 10.7 million, or 22.1 percent of all residential properties with a mortgage.

That is a slight decrease from 10.9 million, or 22.5 percent, in the second quarter, CoreLogic said.

“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness,” Mark Fleming, chief economist at CoreLogic, said in a statement.

As the housing market struggles to recover, the large number of underwater homeowners has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.

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Lately, San Diego’s ride has been smooth, not bumpy, with September’s SA off -0.5%:

The last few years close-up:

The C-S index has its foibles, including the weighting of sales pairs based on when the previous sale happened, and also excludes flips and any other sales that occured less than six months apart. 

But I’ll agree that the San Diego C-S index reflects the approximate trend and attitude on the street, generally speaking.  While the media tends to focus on the distressed sales, there are plenty of other people - in fact, the majority of recent home sellers in Carmel Valley – who probably don’t mind how things turned out.

Here’s a review of the detached sales in 92130 over the last 90 days, categorized by when the sellers first purchased their home.  Excluded in the averages are the sales over $1.5 million:

Obviously the distress is focused around those who purchased during the peak years, but for the 60% majority who purchased before or after, they should be feeling satisfied to have done OK.

On a forward-looking note, for those who are thinking of buying at the optimal point where both rates and pricing are low, here is the recent history of how the mortgages rates compare to the San Diego Case-Shiller Index:

Various interpretations are being put on the Case-Shiller numbers for August:

Bloomberg: Home Prices Fall More Than Forecast

CNBC: Home Prices Stabilize But Recovery On Hold

MoneyCNN: Home Prices Rise For Fifth Straight Month

Calculated Risk: Home Prices Increased Seasonally

The SA number for San Diego was -0.4% in August vs. July, and Y-O-Y it has changed -5.6%.  Here is the local trend:

It’s annoying when virtually everyone from David Blitzer to the analysts throughout the mainstream media insist on saying the home prices went up or down.  To be accurate, the index went up or down, which is full of weighted data!

From the wsj.com:

U.S. home prices rose in July from a month earlier with a boost from seasonal demand, but were down from 2010 levels, according to the Standard & Poor’s Case-Shiller home-price indexes.

The housing market has been struggling to recover due to high unemployment, an abundance of foreclosures and tighter mortgage requirements. Home prices rose in April for the first time in eight months, though most of the improvement was believed to reflect the beginning of the spring-summer home-buying season.

“While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery,” said David Blitzer, chairman of S&P’s index committee. “Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.”

Of the 20 major U.S. metropolitan markets, 17 reported higher prices from a month earlier, led by 3.8% growth in Detroit. Las Vegas and Phoenix saw declines of 0.2% and 0.1%, respectively. Denver was unchanged.

However, with the exception of Detroit and Washington, prices were down year-to-year.

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San Diego’s seasonally-adjusted in green (CR’s preference) vs. non-seasonally adjusted in red:

From HW – with no mention of last year’s tax credit:

The Standard & Poor’s/Case-Shiller 20-city composite home price index, which will be released on Tuesday, likely rose 1.2% in July from the previous month, a Zillow Inc. forecast showed.

The Case-Shiller, a key housing price index that covers 20 U.S. metropolitan areas, likely fell 4% in July from the year-ago period, Zillow said.

The S&P/Case-Shiller 10-city index is expected to show the same month-over-month increase compared to June, while also registering a decline of 3.4% from a year earlier.

“The market is full of conflicting signals right now with August consumer confidence down by 25%, July pending homes slipping, and the four-week moving average of mortgage applications also dipping,” said Zillow Chief Economist Stan Humphries in a statement.

Humphries’ expectations for the Case-Shiller index were initially much weaker, but were bolstered recently by two indicators.

The Zillow home value index, a key factor in its Case-Shiller forecast, rose 0.12% in July, and August home sales rose 7.7%, well ahead of expectations.  Still, uncertainty is plaguing the market and will exert a drag on housing, according to Humphries.

“I still believe that the continued fears about a Greek default, weak employment growth and low consumer confidence will ultimately translate into weaker housing performance in the back half of this year,” he said. “Looking ahead, expect fading monthly momentum in Case-Shiller.”

For those focused on pricing, here’s another angle to examine what’s been happening lately.

We’ve been worried that the higher-end homes would cause pricing squishdown, but there hasn’t been any obvious big drops lately.  The Case-Shiller Index for San Diego has given back almost all of it’s increase generated since 2009, but it’s in slow-motion, and the average cost-per-square-foot and median sales price measurements have their limitations too.

For example, here are Carlsbad and Encinitas detached sales (combined) between Jan-Aug:

2010: 918 sales, avg. $303/sf

2011: 929 sales, avg. $291/sf 

A simple look, and not alarming – a measly 4% drop on price with a 1% increase in sales.

But let’s check the average square footage to see if you’re get more for your money, and how the number-of-sales-per-price-range has changed using the same data:

These are fairly large sample sizes, yet the action appears to be going in opposite directions. The higher-end homes look to be getting smaller, but in the under-$500,000 group not only is the average square footage growing, but there are almost 2.5 times as many sales this year than last!

Carmel Valley’s highest-end category has had a 70% increase in sales YOY, but much can be attributed to the surge of sales in the $2 million-plus Rancho Pacifica. In 2010, there were only three sales in RP between January and August, this year there have been twelve!

The other CV categories are showing a little weakness, but with their smaller sample sizes there is more room for variance. But generally it feels like there has been some hesitancy in the Carmel Valley steamroller lately.

Generally, today’s buyers are getting more bang for their buck – and at mortgage rates in low 4%s!

The banking/government industrial complex should look at this, and think everything is fine – don’t spend any more trillions!!

These guys aren’t as famous as Case-Shiller yet, but they employ a similar tracking of same-house repeat sales around the country (they have 45 million observations on file!). 

Here are the changes in their HPI year-over-year for the San Diego County single-family detached properties - as a county, it looks like we gave back most of what was gained since early 2009: