Analysis: What’s in a home price index?

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CHARLOTTE — Home prices are continuing to tick upward across the country and in Charlotte.

So say two leading indices released last week, as well as this last month’s Carolina Multiple Listing Services home sales figures.

But does that really mean that the recession is over in Charlotte and that homebuilders and developers working in the area are finally making more money?

That might be a little too optimistic.

So say a trio of Charlotte-area experts: Tamara Lynch, of Columbus, Ohio-based M/I Homes; Jim Burbank, of Saussy Burbank, a homebuilder with offices in North and South Carolina; and Tom Pearson, a Charlotte developer.

They say that if you drill down into the numbers, you find that prices can be deceiving.

But first, here are the numbers.

–  Standard & Poor’s/Case-Shiller index last week reported prices for single-family homes in 20 U.S. cities were up 1.6 percent in July over June and up 1.2 percent over July 2011. In Charlotte, prices were up 0.9 percent for the month and 2.2 percent for the year.

–  That was followed Thursday by a U.S. Commerce Department’s report that said the median price for new single-family homes soared a record 11.2 percent from July to August. The median price, $256,900, also surged 17 percent in the year-over-year analysis, the highest jump in eight years.

–  Finally, according to the CMLS, the median price paid for homes in August was $158,000, up 3.3 percent from the same month last year.

But what’s in a price, really?

“Well, prices might be going up according to the data, but that doesn’t mean prices are up for a certain product,” said Pearson, who has been a developer in Charlotte since 1985.

“It means that because of falling interest rates and some improvement in the economy, people are able to buy a better product that costs more.”

It’s a fine line that Pearson is drawing, but it’s an important one to draw if you want to understand the nuances of price dynamics.

“Let’s say a builder has a product called the Bordeaux, 2,000 square feet and $225,000,” he said. “That price has not gone up. But fewer people are buying it. Instead, more people are buying another product called the Brown, 2,500 square feet and $280,000.”

In other words, more people are starting to be able to afford more house, but houses, per square foot, actually cost the same.

“Our builders,” Pearson said, “are still out there hurting.”

At M/I Homes, Lynch, the company’s sales and marketing vice president, said prices are rising at least in part because land is more expensive to develop and houses pricier to build.

That means that even if prices are rising, builders and developers are not necessarily realizing more, if any, profits.

“We’re seeing increases in labor and materials costs, which puts stress on the builders, so you’re seeing the tick up in prices,” Lynch said.

Land is becoming more expensive, too, because of a growing lack of supply in the Charlotte area.

“In all of the ‘A’ housing developments, we’re seeing builders buying up all the available land, and that is also being reflected in prices,” Lynch said.

Burbank, chairman of Saussy Burbank, which develops land and builds houses throughout the Carolinas, said that if prices are going up, they’re not going up enough to make a real difference.

“The growth we’re seeing is not robust.” Burbank said. “It’s a little better. A little.”

So if prices are not a reliable guide, what would be?

Burbank and Pearson said the same four-letter word in separate interviews: jobs.

“There are no new jobs in Charlotte, and that has got to change,” Pearson said.

Burbank agreed.

“The thing we really need to is to see some real job growth in Charlotte,” he said. “And we’re not seeing that yet.”

So if you want to watch a number to know if the Charlotte housing market is back on track, forget the price indices for the time being.

Watch the unemployment rate. Keep track of whether Charlotte’s biggest employers are hiring. Listen in when you hear news of companies moving to town.

Then get ready to hit the sell button.

BROWN can be reached 704-247-2912, [email protected], or on Twitter at @tonymecktimes.