This was a big day in the news for San Diego real estate. Standard & Poor’s Case-Schiller Home Price Index was released today for April 2010. The index, which measures resale values of single-family houses, shows sale prices of houses in San Diego rose 11.7 percent between April 2009 and April 2010. Only San Francisco, with an 18 percent increase, rose faster than the San Diego real estate market in the past twelve months.
But rising San Diego home sales figures are not an exception. Thirteen of the twenty metropolitan statistical areas (MSA’s) covered in the index showed price increases from a year earlier. And all twenty MSA’s showed increases from March 2010.
This news, like recent news of San Diego homes sale prices increasing, should be read conservatively, but not ignored. Bad-news reporters and gloomy economists are quick to dismiss the recent real estate price increases as an abnormality in light of continued foreclosures and unemployment numbers. But the fact is, the statistics make sense. They show San Diego houses at roughly the same values that they were at in April 2003. What is the rough value of your stock portfolio right now compared to April 2003?
The conservative caution is not to expect 11.7% increases on San Diego homes every year. The average house appreciates roughly four percent per year. We’ve been in a trough for a while folks; actually well below that annual four percent trend line. Now we’re getting back to the trend line. But there’s nothing wrong with talk of recovery if we’re talking about returning to a normal real estate market.
Here is the list of the 20 Cities and the change in their house value index from April 2009 to April 2010:
San Francisco 17.99%
San Diego 11.74%
Los Angeles 7.79%
New York -1.02%
Las Vegas -8.52%
Still, I think it’s important to get a better idea for the Case-Shiller methodology used to determine the increase in home prices. Here’s a general summary from the Standard & Poor’s Case Shiller website:
The “repeat sales method” used by the Case-Shiller index is considered the “most reliable means to measure housing price movements”. The Office of Federal Housing Enterprise Oversight (OFHEO) uses their same methodology in its reports. This involves looking at homes that have sold at least twice so that a reliable resale price can be determined. New construction is not counted, nor are multiple unit properties such as condos or apartments.
When the resales of existing homes are identified, the Case-Shiller index compiles “matched sale pairs” of homes sold in the month the index is released and in the two prior months. So the index released in April includes sales in February, March, and April. Only arm’s-length transactions are included. For example, transfers between family members would be excluded. Transactions with wildly unrealistic values are excluded as suspected data errors. In an effort to compare homes of constant quality, the index also seeks to exclude properties that have been remodeled or renovated. So any homes that have been bought and sold in the preceding six-month period are excluded as suspected sales by investors “fixing and flipping” the properties.
If you enjoy reading about statistical methodology, click here to read the Case-Shiller Home Price Index Methodology. It’s actually pretty interesting (or maybe I’m just a little strange that way). But the fact is, San Diego real estate has stabilized and is improving. There is heavy demand at the entry level. Luxury home sales in San Diego are also increasing again, albeit at reduced prices. And the mid-range properties priced $700,000 to $1.5 Million are also regaining their footing. Expect more of the same news next month.