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:

San Diego CSI Sept Oct MOM % chg YOY % chg
SA 151.67 151.61
NSA 153.72 152.86

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:

SD Sales Counts Case-Shiller SD MLS

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.


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