Behind the numbers: Home price comparisons vary based on methods used

CHARLOTTE ─The CoreLogic May Home Price Index, which came out this week, said that as of the end of May, home prices in the Queen City real estate market rose 9.5 percent over last year.

At least four different organizations do monthly home price indexes, and each comes up with different numbers. Which is right? All of them.

On the very same day, another national residential real estate analytics firm, Clear Capital, released its June Home Data Inde,x and said the very same market had posted a 1.8 percent loss.

CoreLogic, based in Greater Los Angeles, and Truckee, Calif.-based Clear Capital are not the only organizations out there reporting diverging price changes for residential real estate in the Charlotte market.

The Charlotte Regional Realtor Association’s May sales report put the May 2013 over May 2012 increase in price at 4.8 percent.

And the Standard & Poor’s/Case-Shiller Home Price Indices said home prices in the Queen City metro area had risen 7.3 percent between April 2013 and the same month last year.

To make matters even more intriguing, Case-Shiller was bought by CoreLogic in April, yet the two sister reports differed by 2.3 percent.

So what are real estate, development and construction professionals to make of all these numbers when these various reports and others are blurted out in media outlets and on the internet with little or no explanation or background?

Life would be easier if one of these reports were definitively right and the rest flawed, but it’s more complicated than that.

They arrive at different conclusions because they measure different data by different methods.

Yet they all appear to be credible in terms of what their researchers set out to find.

The CRRA report ─ like the monthly reports issued by the Raleigh-based N.C. Association of Realtors and the National Association of Realtors of Washington, D.C. ─ uses a different methodology than the other three.

The CRRA adds together the top price paid for a home in the Carolina Multiple Listing Services that sold in the most recent month and the bottom price. It divides the sum by two to arrive at a median home price. It then compares that median price against the median price for the same month a year earlier to arrive at a percentage increase or decrease.

The CRRA ─ which is expected to issue its June report soon ─ also reports an average sales price, but the median price is considered by statisticians to be more valid for comparisons.

Using the median-price methodology, the CRRA report measures what Charlotte-area homebuyers are buying, and how much they are willing to pay.

And what they’re buying and paying for, according to the last 18 consecutive CRRA month reports ─ are homes that are more expensive.

The other three reports ─ CoreLogic, Case-Shiller and Clear Capital ─ do not track median prices paid for homes that sold in a given month.

Instead, they base their reports on what is known in the business as “repeat sales,” an analysis of the difference between what a house sold for in the most recent month covered by the report versus the previous times it changed hands.

Or, as CoreLogic spokeswoman Lori Guyton put it: “Let’s say you have a home at 123 Main St. It sold 10 years ago for $100,000 and now it sold for $150,000. We gather data on millions of homes in 385 markets, and base our reports on how the prices have changed.”

The statistics applied and weighting of data get complicated, but the essence is this:

Instead of figuring out what homebuyers are buying, CoreLogic, Case-Shiller and Clear Capital measure the shifting values of homes.

For CoreLogic’s purposes, the company uses the repeat sales method because “it provides a more accurate ‘constant-quality’ view of pricing trends than basing analysis on all home sales,” according to a disclaimer on its monthly report.

Alex Villacorta, vice president for research and analytics at Clear Capital, said he agreed, but put his own spin on it:

“Median homes prices are subject to the whims of buyer preferences. Say there is a lot of activity in the condo market, but then there is a shift to single family homes, which generally cost more. That gives you a higher median price, but is in no way reality when it comes to the changing value of the homes in a given market.”

But Villacorta was also quick to say that studying median home prices has a place in analyzing housing markets.

“What I’ve said about median home prices is not to say they’re not useful, especially in determining buyer preferences,” Villacorta said. “We’re not in any way trying to make a claim they aren’t useful. In fact, we do some median home price research for our clients, but not for our monthly reports.”

As of press time, CRRA officials did not respond to an emailed series of questions about the organization’s methodology.

The next question is: If CoreLogic, Case-Shiller and Clear Capital all use the same data-gathering methodology, why do their sales reports vary so widely?

It all depends, said Villacorta, speaking for Clear Capital, and Guyton, speaking for CoreLogic and its Case-Shiller subsidiary, on the markets a company studies; the public and proprietary databases accessed; the statistical profiles used; and the weighting given to certain data.

CoreLogic, for example, claims in its report that it “provides the most comprehensive set of monthly home prices available” because it collects data from “6,892 ZIP codes (58 percent of total U.S. population), 639 Core Based Statistical Areas (86 percent of total U.S. population) and 1,220 counties (84 percent of total U.S. population) in all 50 states and the District of Columbia.”

The Case-Shiller report, which is the most widely reported monthly home price report for its association with McGraw Hill Financial’s S&P Dow Jones Indices, is different from the others because it includes only single-family detached homes, which are considered the industry’s benchmark product, and excludes condominiums and town houses.

The Case-Shiller report also diverges from CoreLogic’s and Clear Capital’s because it focuses on the country’s top 10 housing markets (which does not include Charlotte) and the top 20 (which does).

And at Clear Capital, Villacorta said his company’s analytics made a difference. “We do a lot ─ a lot ─ of statistic processing,” Villacorta said.

For example, Villacorta said, Clear Capital adjusts and weights its data to filter out price spikes and plummets in prices caused by the complete remodeling of a home or a home fire between sales; seasonal cycles; and “short blips” fueled by tax credits.

Clear Capital spokeswoman Alanna Harter also touts her company’s use of a “rolling quarter,” which measures the most recent three months instead of the calendar-based quarters of the year.

So what are real estate, development and construction professionals to make of all these numbers?

The bottom line on home price reports is this:

Do a little research on the research groups.