As CR pointed out yesterday, there are now several home pricing indicies.
The one developed by FNC attempts to overcome the problems with the repeat-sale measurements – here is their explanation:
One possible approach to address this dilemma is to consistently use all of the housing stock for each period. To do this it is necessary to have a market price for each house in each period.
Since all the properties do not sell, a model must be created to price all of the major attributes of a house (i.e. location, gross living area, age, lot size, bedrooms, bathrooms, etc.) and then compute an estimated market price for each property. The value of each of the attributes is estimated based on the observed properties that do sell over an extended window.
This approach allows all of the properties to be included in the index which then provides a stable broad based index for each period. Models of this type are referred to as hedonic models and have been used for many decades to estimate the value of a property. The limitation to using this approach for an index has been the general lack of availability of characteristic information about residential properties.
FNC has developed a hedonic index based on the data collected from public records and blended with data from appraisals. The addition of the appraisal data provides the physical property characteristic data that is often missing from public records.
Here is their San Diego Residential Price Index, which has a familar shape to it:
hah, they are using assessor records!
may work for newer construction, but I can’t tell you how many 1940’s houses I’ve seen listed on the MLS at 2500sf which are on the rolls at 900.
This one shows a lower index, right around 2002 pricing. Most others show it around 2003 pricing, which was 15%-20% higher. Take in inflation, and we are probably around 2000-2001 real pricing.
A couple ways to look at the inflation over the period.
If we use the official CPI, something that cost $100 in Jan 2000 would cost about $126 today. Let’s say the housing index plotted above is about at 162 today. So over that period, housing prices have gone up at more than twice the rate of inflation (62% rise vs. 26% rise).
On the other hand, house prices went up so fast at the start of that period, the current house index value, taking the CPI into account, was last experienced about the middle of 2001.