What's Ahead For Mortgage Rates This Week - March 17, 2014

Last week's economic reports provided rays of light as compared to the recent slump in positive economic news.

Unusually severe winter weather conditions affected housing-related indicators as home builders and home buyers stayed on the sidelines.

With spring on the horizon, last week's economic news showed welcome signs of growth.

Job Openings Up, New Jobless Claims Fall

Employment is a major factor in the decision to buy a home; would-be home buyers received a vote of confidence last week as January's job openings increased by one million to 40 million as compared to December's reading of 39 million job openings.

February's reading will likely reflect a lull in activity due to winter weather conditions in much of the U.S.

Weekly jobless claims fell from 324,000 to 315,000. The Bureau of Labor Statistics reported expectations of 330,000 new jobless claims, so the latest report was good news.

Weekly reports are more volatile than monthly statistics; analysts typically track employment trends by reviewing rolling averages of several weeks' new jobless claims data.

Mortgage Rates, Retail Sales Rise

Freddie Mac reported that average mortgage rates rose last week. The rate for a 30-year fixed rate mortgage rose by nine basis points to 4.37 percent. 15-year fixed rate mortgages had an average rate of 3.38 percent; this was an increase of six basis points

The average rate for a 5/1 adjustable rate mortgage was 3.09 percent, up from the previous week's reading of 3.03 percent.

Discount points dipped from 0.70 to 0.60 percent for a 30-year fixed rate mortgage, were unchanged for 15-year and 5/1 adjustable rate mortgages at 0.60 and 0.40 percent.

Retail sales increased for the first time in three months according to the Commerce Department.

February retail sales surpassed expectations of a 0.20 percent gain and came in at 0.30 percent. January figures were downwardly adjusted to -0.60 percent. Retail sales exclusive of automotive sales were also higher at 0.30 percent than expectations of 0.10 percent.

The University of Michigan Consumer Sentiment index for mark was slightly lower at 79.9 than expectations of 80.8.

This was the lowest reading in four months, and was attributed in part to higher gas prices and consumer concerns over developments in Ukraine.

What's Coming Up

This week's economic news includes several housing-related reports.

The NAHB Home Builder Index for March, Housing Starts and Building Permits for February, and Existing Home Sales are set for release.

On Wednesday, the Fed's FOMC statement will be released and Fed Chair Janet Yellen will give a press conference. The Fed is expected to continue its ongoing tapering of quantitative easing.

Leading economic indicators will be released along with the Weekly Jobless Claims report and Freddie Mac's Primary Mortgage Market Survey.

What's Ahead For Mortgage Rates This Week - March 10, 2014

Last week's economic news included construction spending and the CoreLogic Home Price Index for January.  Reports for February included ADP Employment, Non-Farm Payrolls and national unemployment data.

The Federal Reserve's Beige Book report and weekly reports on mortgage rates and new unemployment claims rounded out the week's economic news.

Highlights for last week include:

Consumer spending gained 0.40 percent for January. The expected reading was 0.20 percent and the reading for December was flat.

The Commerce Department reported that increased spending was less an indicator of consumer discretionary spending than an indicator of high utility costs caused by severe winter weather.

Construction spending ticked upward in January with gain of 0.10 percent as compared to expectations of -0.40 percent and the prior month's reading of 0.10 percent.

January's reading translates to a seasonally adjusted annual figure of $943.1 billion.  

Federal Reserve: Winter Weather Obscures Accurate Economic Outlook

According to the Fed's Beige Book report, much of the U.S. economy was impacted by severe winter weather. The report is based on anecdotal information provided by business contacts and industry leaders throughout the 12 regions of the U.S. Federal Reserve System.

Eight regions reported slow economic growth. Janet Yellen, chairwoman of the Fed, noted that winter weather was not expected to alter the Fed's plan to continue reducing its asset purchases under its quantitative easing program. She also said that it may be months before accurate economic readings can be obtained in the aftermath of winter weather conditions.

Freddie Mac's Primary Mortgage Market Survey brought good news on Thursday as mortgage rates fell across the board and discount points were also lower in most cases.

Average mortgage rates were down nine basis points for a 30-year fixed rate mortgage at 4.28 percent. The average rate for a 15-year fixed rate mortgage was 3.32 percent, a decrease of seven basis points.

The rate for a 5/1 adjustable rate mortgage was 3.03 percent, down by two basis points from the prior week. Discount points were unchanged for 30-year fixed rate mortgages at 0.70 percent, but dropped to 0.50 percent for 15-year fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

Employment Sector: Surprise Results

The ADP payroll report showed a reading of 139,000 jobs added in February as compared to the prior month's 127,000 jobs. ADP tracks private sector jobs. The BLS released its Non-Farm Payrolls report for February, which also surpassed expectations.

175,000 jobs were added against expectations of 140,000 jobs added and January's reading of 129,000 jobs added. The national unemployment rate rose to 6.70 percent against an expected drop to 6.50 percent from January's reading of 6.60 percent. Once again, foul weather was seen as a major influence.

What's Ahead This Week

This week's economic news schedule is relatively light with no releases set for today.

Mortgage rates will be released by Freddie Mac on Thursday, along with weekly jobless claims. Retail sales and the University of Michigan consumer sentiment index round out next week's schedule. 

Case-Shiller Index Shows Near 6% Home Price Gain

Home prices continue their upward climb. 

Last week, the S&P/Case-Shiller Index showed home prices gaining 5.5 percent during the 12-month period ending November 2012, marking the largest one-year gain in home prices since May 2010.

The Case-Shiller Index measures changes in home prices by tracking same-home sales throughout 20 housing markets nationwide; and the change in sales price from sale-to-sale.

Detached, single-family residences are used in the Case-Shiller Index methodology and data is for closed purchase transactions only.

Between November 2011 and November 2012, home values rose in 19 of the 20 Case-Shiller Index markets, with previously-hard hit areas such as Phoenix, Arizona leading the national price recovery.

The Phoenix market gained 1.4% for the month and was up 22.8% for the previous 12 months combined. 

The top three monthly "gainers" for November 2012 were:

• Phoenix, Arizona : +1.4 percent
• San Francisco, California :  +1.4 percent
• Minneapolis, Minnesota : +1.0 Percent

Only New York City posted annual home value depreciation. On average, homes lost -1.2% in value there.

It should be noted, however, that the Case-Shiller Index is an imperfect gauge of home values.

First, as mentioned, the index tracks changes in the detached, single-family housing market only. It specifically ignores sales of condominiums, co-ops and multi-unit homes. 

Second, the Case-Shiller Index data set is limited to just 20 U.S. cities. There are more than 3,000 cities nationwide, which illustrates that the Case-Shiller sample set is limited. 

And, lastly, the home sale price data used for the Case-Shiller Index is nearly two months behind its release date, rendering its conclusions somewhat out-of-date. 

That said, the Case-Shiller Index joins the bevy of home value trackers pointing to home price growth over the last year. The Federal Housing Finance Agency (FHFA), for example, reported similar home price growth with its November 2012 House Price Index (HPI).

Home values rose 0.6 percent between October and November 2012 nationwide, the FHFA said, and climbed 5.6 percent during the 12 months ending November 2012. 

Economists attribute increasing home prices to higher buyer demand, record-low mortgage rates and the gradual improvement of the U.S. economy.

Case-Shiller Index Posts 4% Annual Home Price Gain

The U.S. housing market continues to make home price gains.

Earlier this week, the S&P/Case-Shiller Index showed home prices gaining 4.3 percent during the 12-month period ending October 2012, marking the largest one-year gain in home prices since May 2010.

The Case-Shiller Index measures changes in home prices by tracking same-home sales throughout 20 housing markets nationwide; and the change in sales price from sale-to-sale. Detached, single-family residences are used in the Case-Shiller Index methodology and data is for closed purchase transactions only.

Between October 2011 and October 2012, home values rose in 18 of the 20 Case-Shiller Index markets, with previously-hard hit areas such as Phoenix, Arizona leading the national price recovery.

The top three "gainers" for the 12 months ending October 2012 were :

• Phoenix, Arizona : +21.7 percent
• Detroit, Michigan :  +10.0 percent
• Minneapolis, Minnesota : +9.2 Percent

Only Chicago and New York City posted annual home value depreciation. On average, homes lost -1.3% and -1.2% in value, respectively.

It should be noted, however, that the Case-Shiller Index is an imperfect gauge of home values

First, as mentioned, the index tracks changes in the detached, single-family housing market only. It specifically ignores sales of condominiums, co-ops and multi-unit homes. 

Second, the Case-Shiller Index data set is limited to just 20 U.S. cities. There are more than 3,000 cities nationwide, which illustrates that the Case-Shiller sample set is limited.

And, lastly, the home sale price data used for the Case-Shiller Index is nearly two months behind its release date, rendering its conclusions somewhat out-of-date.

That said, the Case-Shiller Index joins the bevy of home value trackers pointing to home price growth over the last year. The Federal Housing Finance Agency (FHFA), for example, reported similar home price growth with its October 2012 House Price Index (HPI).

Home values rose 0.5 percent between September and October 2012 nationwide, the FHFA said, and climbed 5.6 percent during the 12 months ending October 2012.

Economists attribute increasing home prices to higher buyer demand, record-low mortgage rates and the gradual improvement of the U.S. economy.

Case-Shiller index Shows Home Values Rising Nationwide, Too

There have been no shortage of "housing market" stories lately. After sinking through much of late-last decade, home values slowly stabilized into mid-2011. By October 2011, values appeared to have bottomed.

Today, nearly five-and-one-half years after the April 2007 housing market peak, home prices are finally showing their ability to rebound. Over the past 12 months, a bevy of housing market data highlights broad-based market growth.

For example, as compared to August 2011, Existing Home Sales are up 9.3 percent nationally; New Home Sales are up 27.7 percent nationally; and home inventories have slipped to multi-year lows in Brooklyn, NY and throughout the country.

Furthermore, multiple home value trackers show home prices rising both regionally and nationwide.

Last week, the government's Federal Housing Finance Agency released its Home Price Index (HPI) -- a metric which tracks how home values change between sequential property sales. HPI showed home values up 3.7% nationally.

Another home valuation tracker -- the S&P Case-Shiller Index -- has shown home values to be rising, too.

As compared to one year ago, the private-sector metric puts home prices higher by 1.2 percent via its 20-city composite. 20 cities remains a small subset of the broader U.S. population, but, in looking for a trend, it's clear that the trend is a positive one.

Some of the Case-Shiller Index highlights from its most recent report :

• All 20 tracked cities showed home price gains between June 2012 and July 2012
• The previously hard-hit city of Phoenix now leads the nation with a 16.6% annual gain
• Versus their respective lows, San Francisco and Detroit are up 20.4% and 19.7%

In addition, on a 12-month basis, only four cities are showing negative home value growth -- Atlanta, Chicago, Las Vegas, and New York City.

The Case-Shiller Index is a national index, though, and specifically does not report on valuation changes in specific U.S. cities and their neighborhoods. For local real estate data, make sure to speak with a local real estate agent instead.

Home Price Index Shows Values Rising 3.7% From One Year Ago

Tuesday, the Federal Home Finance Agency's Home Price Index (HPI) showed home values rising 0.2% on a seasonally-adjusted basis between June and July 2012, and moving +3.7% on an annual basis.

Home values have not dropped month-to-month since January of this year -- a span of 6 months.

For today's home buyers and sellers throughout Brooklyn, NY , though, it's important to recognize on what the HPI is actually reporting.

Or, stated differently, on what the HPI is not reporting. The Home Price Index is based on home price changes of some homes, of certain "types", with specific mortgage financing only.

As such, it excludes a lot of home sales from its results which skews the final product. We don't know if home values are really up 0.2% this month -- we only know that's true for the home that the HPI chooses to track.

As an example of how certain homes are excluded, because the HPI is published by the Federal Housing Finance Agency and because the FHFA gets its access to home price data from Fannie Mae and Freddie Mac, it's upon data these two entities upon which the Home Price Index is built.

Home price data from the Federal Housing Administration (FHA), from local credit unions, and from all-cash sales, for example, are excluded from the HPI because the FHFA has no awareness that the transaction ever happened.

In 2006, this may not have been a big deal; the FHA insured just 4 percent of the housing market at the time. Today, however, the FHA is estimated to insure more than 20% of new home purchases. Furthermore, in August, more than 1 in 4 sales were made with cash.

None of these home sales were included in the HPI.

Furthermore, the Home Price Index excludes certain home types from its findings.

Home sales of condominiums, cooperatives, multi-unit homes and planned unit developments (PUD) are not used in the calculation of the HPI. In some cities, including Chicago and New York City, these property types represent a large percentage of the overall market. The HPI ignores them.

Like other home-value trackers, the Home Price Index can well highlight the housing market's broader, national trends but for specific home price data about a specific home or a ZIP code, it's better to talk with a real estate agent with local market knowledge.

Since peaking in April 2007, the Home Price Index is off 16.4 percent.

Case-Shiller Index Shows Huge Home Price Gain

Home prices continue to rise nationwide. 

According to the Standard & Poor's Case-Shiller Index, home prices rose 6.9% between the first and second quarter of 2012, the largest quarter-to-quarter gain since the home-value tracker's 1987 inception and another signal that the housing market is in recovery.

The private-sector metric's results are similar to what the government's Home Price Index showed for June, too -- values rising quickly. In addition, for the second straight month, each of the Case-Shiller Index's 20 tracked markets showed month-to-month improvement.

June would have marked three straight months if not for Detroit's value-setback in April.

The top performing markets in June, as tracked by the Case-Shiller Index were :

1. Detroit, Michigan : 6.0 percent gain
2. Minneapolis, Minnesota : 4.8 percent gain
3. Chicago, Illinois : 4.6 percent gain

However, it should be noted that the Case-Shiller Index pulls from a limited sample set. It does not include condominiums or multi-unit homes in its findings, nor does it account for new construction. These exclusions make a material impact on the results of both Minneapolis and Chicago, as examples. Both cities feature a large concentration of condos.

Overall, though, the June data looks sound. Said a spokesman for the Case-Shiller Index, "The market may have finally turned around."

Furthermore, home buyers in Bedford Stuyvessant and nationwide can corroborate what the Case-Shiller Index has uncovered. Falling home inventory and rising home demand have helped to move home prices higher in many U.S. markets.

Low mortgage rates make new homes affordable and rising rents are turning the Rent vs Buy equation on its head. In July, according to the National Association of REALTORS®, first-time home buyers accounted for 34% of all home resales.  This trend is expected to continue into 2013.

As compared to one year ago, today's home buyers have 8% more purchasing power and, with rising home prices, they're going to need it.

Government : Home Prices Up 3.0% In Last 12 Months Nationwide

The housing market recovery appears to be sustainable.

According to the Federal Housing Finance Agency's Home Price Index, home prices rose by a seasonally-adjusted 0.7 percent between May and June 2012. The index is now up 3.0% over the past 12 months, and made its biggest quarterly gain since 2005 last quarter.

The FHFA's Home Price Index measures home price changes through successive home sales for homes whose mortgages are backed by Fannie Mae or Freddie Mac, and for which the property type is categorized as a "single-family residence". 

Condominiums, multi-unit homes and homes with jumbo mortgages, for example, are excluded from the Home Price Index, as are all-cash home sales.

June's HPI gives buyers and seller in Brooklyn, NY reason to cheer, but it's important to remember that the Home Price Index -- like so many other home valuation trackers -- has a severe, built-in flaw. The HPI uses aged data. It's nearly September, yet we're talking numbers from June.

Data that's two months old has limited meaning in today's housing market. It's reflective of the housing market as it looked in the past.

And, even then, to categorize the HPI as "two months old" may be a stretch. Because it often takes 45-60 days to close on a home sale, the home sale prices as reported by the July Home Price Index are the result of purchase contracts written from as far back as February 2012.

Buyers and sellers in search of real-time home price data, in other words, won't get it from the FHFA.

The Home Price Index is a useful housing market gauge for law-makers and economists. It highlights long-term trends in housing which can assist in allocating resources to a particular policy or project. For home buyers and sellers throughout New York , however, it's decidedly less useful. Real-time data is what's most important.

For that, talk to a real estate professional.

Home Values Rise 0.8% In May 2012

The housing market's bottom is 9 months behind us. Home values continue to climb nationwide.

According to the Federal Home Finance Agency's Home Price Index, home values rose 0.8% in May on a monthly, seasonally-adjusted basis. May's reading marks the sixth time in seven months that home values rose.

Values are now higher by 4 percent since the market's October 2011 bottom.

As a Brooklyn, NY home buyer or seller, though, it's important to understand what the Home Price Index measures. Or, more specifically, what the Home Price Index doesn't measure.

Although widely-cited, the HPI remains widely-flawed, too. It should not be your sole source for real estate data.

As one example of how the Home Price Index is flawed, consider that the HPI only tracks the values of homes with an associated Fannie Mae- or Freddie Mac-backed mortgages. Homes with mortgages insured by the FHA are excluded, as are homes paid for with cash.

5 years ago, this wasn't a big deal; the FHA insured just 4 percent of the housing market and cash sales were relatively small. Today, though, the FHA is estimated to insure more than 30% of new purchases and cash sales topped 17 percent in May 2012.

That's a sizable subset of the U.S. housing market.

A second flaw in the Home Price Index is that it tracks home resales only and ignores new home sales. New home sales represent roughly 10% of the today's housing market, so that's a second sizable subset excluded from the HPI.

And, lastly, we can't forget that the Home Price Index is on a 60-day publishing delay.

It's nearly August, yet we're only now receiving home valuation data from May. A lot can change in the housing market in 60 days, and it often does. The HPI is not reporting on today's market conditions, in other words -- it's reporting on conditions as they existed two months ago. Information like that is of little use to today's buyers and sellers in East New York.

For local, up-to-the-minute housing market data, skip the national data. Talk with a local real estate agent instead.

Since peaking in April 2007, the FHFA's Home Price Index is off 16.0 percent.

FHFA : Home Values Up 3% Since Last Year

The Federal Home Finance Agency's Home Price Index shows home values up 0.8% in April on a monthly, seasonally-adjusted basis.

April marks the third consecutive month during which home values increased and the index is now up 3 percent from last year at this time.

As a home buyer in Brooklyn, NY , it's easy to look at the Home Price Index and believe that its recent, sustained climb is proof of a broader housing market recovery. Ultimately, that may prove true. However, we cannot base our buy-or-sell decisions on the HPI because, like the private-sector Case-Shiller Index, the Home Price Index is flawed.

There are three main flaws in the FHFA's Home Price Index. They cannot be ignored.

First, the FHFA Home Price Index's sample set is limited to homes with mortgages backed by Fannie Mae or Freddie Mac. By definition, therefore, the index excludes homes with mortgages insured by the FHA.

5 years ago, this wasn't such an issue because the FHA insured just 4 percent of mortgage. Today, however, the FHA's market share is estimated to exceed 30 percent.  This means this the HPI excludes more than 30% of U.S. homes from its calculations right from the start.

The index also excludes homes backed by the VA; jumbo mortgages not securitized through the government; and, portfolio loans held by individual banks.

Second, the FHFA Home Price Index is based on the change in price of a home on consecutive home sales. Therefore, it's sample set cannot include sales of new home sales, nor can it account for purchases made with cash because cash purchases require no mortgage.

Cash purchases were 29% of the home resale market in April.

Third, the Home Price Index is on a 60-day delay.

The report that home values are up 0.8% accounts for homes that closed two months ago, and with contracts from 30-75 days prior to that. In other words, the Home Price Index is measuring housing market activity from as far back as January. 

Reports such as the Home Price Index are helpful in spotting long-term trends in housing but data from January is of little help to today's New York home buyers and sellers. It's real-time data that matters most and the best place to get real-time housing market data isn't from a national home valuation report -- it's from a local real estate agent.

Home Values Start The Year Strong

Home prices started the year on an upswing. 

According to the Federal Home Finance Agency's Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index's assertion that home values are sinking.

Last week, Standard & Poor's Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months. 

As a home buyer or seller in Brooklyn, NY , data showing "rising home values" or "falling home values" may be of interest to you, but we can't forget that most home valuation trackers -- including both the government's Home Price Index and the private sector Case-Shiller Index -- have a severe, built-in flaw.

Both used "aged" data. Today, the calendar reads May. Yet, we're still discussing February's housing data.

Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the "right now" of housing. And, even then, characterizing the data as "two-plus months old" may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.

Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we're really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.

Data that's 5 months old is of little relevance to today's buyers and sellers. Today's market is driven by today's economics.

The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller throughout New York , though, it's much less useful. Real-time data is what matters to you.

For that, talk to a real estate professional.

Nationally, Home Prices Off 18.3 Percent From April 2007 Peak

The government confirms what the private-sector Case-Shiller Index reported yesterday. Nationwide, average home values slipped in October.

The Federal Home Finance Agency's Home Price Index shows home values down 0.2% on a monthly, seasonally-adjusted basis. October marks just the second time since April that home values fell month-over-month.

The Case-Shiller Index 20-City Composite showed values down 0.7 percent from September to October.

As a home buyer in Brooklyn, NY , it's easy to look at these numbers and think housing markets are down. Ultimately, that may prove true. However, before we take the FHFA's October Home Price Index at face value, we have to consider the report's flaws.

There are three of them -- and they're glaring. As we address them, it becomes clear that the Home Price Index -- like the Case-Shiller Index -- is of little use to everyday buyers and sellers in places like Bedford Stuyvessant.

First, the FHFA Home Price Index only tracks home values for homes backed by Fannie Mae or Freddie Mac mortgages. This means that homes backed by the FHA, for example, are specifically not computed in the monthly Home Price Index.

In 2007, this was not as big of an issue as it is today. in 2007, the FHA insured just 4 percent of the housing market. Today, the FHA is estimated to have more than one-third of the overall housing market.

This means that one-third of all home sales are excluded from the HPI -- a huge exclusion.

Second, the FHFA Home Price Index excludes new home sales and cash purchases, accounting for home resales backed by mortgages only. New home sales is a growing part of the market, and cash sales topped 29 percent in October 2011.

Third, the Home Price Index is on a 60-day delay. The above report is for homes that closed in October. It's nearly January now. Market momentum is different now. Existing Home Sales and New Home Sales have been rising; homebuilder confidence is up; Housing Starts are showing strength. In addition, the Pending Home Sales Index points to a strong year-end.

The Home Price Index doesn't capture this news. It's reporting on expired market conditions instead.

For local, up-to-the-minute housing market data, skip past the national data. You'll get better, more relevant facts from a local real estate agent.

Since peaking in April 2007, the FHFA's Home Price Index is off 18.3 percent.

Home Values Rose For the 4th Straight Month

The government is confirming what the private sector has already shown --  home values are on the rise.

The Federal Home Finance Agency's Home Price Index shows home values rose 0.8% in July.

July marks the fourth straight month that home values climbed and the FHFA's Home Price Index is the latest in a series of "rising home values" reports -- an encouraging trend for buyers and sellers in Brooklyn, NY and nationwide.

Last week, the S&P Case-Shiller Index showed home value up nearly 1 percent in July. CoreLogic reached a similar conclusion.

Nationwide, values are back to their highest levels since November 2010. Clearly, the housing market in New York is moving in the right direction. Or is it?

Although the data from the government and from private firms such as CoreLogic is encouraging, it's also flawed. As such, we have to be careful about the conclusions we draw from the data.

The flaws of Home Price Index are glaring :

1. Only homes backed by Fannie Mae or Freddie Mac are included in the index. In today's market, because of the FHA's popularity, that leaves 1 of 3 homes "uncounted".
2. Only home resales are counted. New home sales are omitted entirely.
3. The data comes with a 60-day delay. The October market is different from July's.

Despite these shortcomings, however, the Home Price Index remains relevant. It's among the most through home valuation models and it's often used by economists and policy-makers.

When the Home Price Index is rising, Wall Street and Capitol Hill take notice. For residents of "Main Street", however, the data may not be as important. To get local, up-to-date market statistics in Bedford Stuyvessant, for example , talk with a professional real estate agent.

Since peaking in April 2007, the FHFA's Home Price Index is off 17.6 percent.

Home Prices Rise For The 2nd Straight Month

A strong spring season helped home values recover, says the government.

According to the Federal Home Finance Agency's Home Price Index, home prices rose a seasonally-adjusted 0.4 percent from April to May.

It's the HPI's second straight increase, and puts the monthly index at its highest point since January 2011.

As a home seller in Brooklyn, NY , you may appreciate news such as "rising home prices", but it's important to remember that the Home Price Index has a several built-in flaws -- the biggest of which its age.

Today, the calendar nearly reads August, yet, we're still discussing May's housing data. A 2-month delay does little to help buyers and sellers wanting to know the "right now" of housing.

Unfortunately, the Home Price Index data is even more aged than that.

Because the FHFA's Home Price Index measures home prices as recorded at closing, the actual sales prices included in the index are from real estate contracts written 30-60 days prior.

In other words, when we look at the Home Price Index report for May, what we're really seeing is a snapshot of the housing market as it existed in March. March's housing market has little to do with the forces driving home prices today.

Today's real estate market is driven by today's economics.

The Home Price Index is a useful gauge for economists and law-makers; it shows long-term national trends in the housing market which can be used to allocate resources to a project, or to form new policy. For home buyers across the state of New York , though, it's less helpful.

For today's real estate buyers and sellers, there's no substitute for real-time data. For that, talk to a real estate professional.

Home Values Up 0.4 Percent In August, On Average

Consistent with the most recent Case-Shiller Index, the government's Home Price Index said home prices rose between July and August. 

The Federal Home Finance Agency's data showed values up 0.4 percent nationwide, on average. Region-by-region, however, the results were scattered. Coastal states tended to perform poorly. Plains states tended to perform well.

A brief look at the regional disparity:

• West South Central : +1.5%
• East North Central : +1.2%
• Pacific : -0.2%
• South Atlantic : -0.2%

Breakdowns like this are important because they highlight the fundamental problem with national real estate data and that's that home buyers in Brooklyn, NY don't buy real estate in a national market, or even a regional one.

Buyers buy local.

When we look at national figures like the Home Price Index, it's important to remember that real estate is a collection of tiny markets which, when lumped together, form small markets which, in turn, lump together into larger markets and so forth.

To illustrate this point, a deeper look at August's Home Price Index data shows that, within the aforementioned Pacific Region, in which home values fell 0.2%, the state of California posted a 2.9% increase. You can be sure that within the state of California, there are cities that performed better than the 2.9 percent, and within those cities, there are neighborhoods that did the same.

Real estate is most definitely local.

That said, we can't discount the national report entirely. Broader housing statistics like the Home Price Index reflect on the economy and are often used to help shape policy in the nation's capital. When you need to know what's happening in your hometown, though, your best source of data is a knowledgeable real estate professional.

Which Model Is More Accurate : The Case-Shiller Index Or The Home Price Index?

The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government's own Home Price Index, however, reached a different conclusion.

According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.

So, as a home buyer and/or homeowner in Brooklyn, NY , by which valuation model should you make your bets?  Perhaps neither. 

This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets. 

The Case-Shiller sample set, for example, comes from just 20 cities across the country -- and they're not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population. 

That's hardly representative of the housing stock overall.

By comparison, the Home Price Index tracks home sales everywhere -- every city in every state -- but it specifically excludes certain properties.  The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing. 

The HPI ignores homes backed by "jumbo" loans, too.

Therefore, the "right" model for home values cannot come from national data at all -- it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood like Brooklyn. A real estate agent in the area does, however.

The best way to get a pulse for what's happening in markets right now is to talk to somebody with good data.

Home Values Within 12.5 Percent Of April 2007 Peak, Nationwide

According the Federal Home Finance Agency's Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide.  This, after a half-percent monthly increase in prices in May, on average.

Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May's half-point increase is an average, and not specific to a particular area.

In contrast to "national markets", the real estate markets in which you and I live are decidedly local.  It's a major difference and the distinction renders the Home Price Index somewhat less important. 

After all, the HPI doesn't account for housing activity in individual neighborhoods like Bedford Stuyvessant , nor does it track value across cities like Brooklyn, NY. Instead, it summarizes data in giant chunks of geography.

A quick look at the HPI regional data proves the point. Of the HPI's 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average.  The others varied by as much 1.3 percent.

As a sample:

• Mountain Region : + 1.7 percent
• New England : + 0.2 percent
• South Atlantic : +1.0 percent

And this is on a regional basis. The HPI's applicability to state, city and neighborhood markets is even less appropriate.

Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood.  That type of granularity can't be tracked in a report like the Home Price Index.

The best place to get that data is from a local real estate agent that knows the market well.