Figuring out home prices

Lots of luck. Just yesterday Dataquick came out with some nasty numbers for January that showed a nearly 12 percent decline in the median home price in L.A. County. It's now at a relatively paltry $458,000. But Dataquick is only one of many organizations - both public and private - that measure homes sales and prices, and all their results vary to some extent. Then you have the housing indexes, which assess the market using different criteria. The WSJ's David Wessel looks at two of these indexes, the Office of Federal Housing Enterprise Oversight's index and the Standard & Poor's Case/Shiller index. Both are based on a concept, developed by Karl Case of Wellesley College and Robert Shiller of Yale University, that looks at repeat sales of the same houses rather than aggregate monthly activity. The differences are substantial: Between the third quarter of ’06 and the third quarter of ’07, the so-called OFHEO index had L.A. prices falling a modest 0.6 percent. The S&P Case/Shiller index had L.A. dropping 6.99 percent.

The big picture here is clear: House prices rose rapidly in the early years of this decade. They have stopped rising in many places. And, in many markets, they are now falling. (Even Ofheo's index showed a quarterly decline at the end of 2007.) And prices don't appear to have touched bottom yet. But Charles Calomiris, a Columbia University economist, says, "Too much weight is being attached to the Case-Shiller index. ... Housing prices may not be falling as much as some economists say they are."

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There are a couple of very big differences. The Ofheo index relies on data collected by Fannie Mae and Freddie Mac, which Ofheo regulates, so it excludes loans too big for Fannie and Freddie to guarantee (those exceeding $417,000) or too shaky (the riskiest of the subprime). Case/Shiller includes those, but its data are limited to 100 major markets because it relies on the costly process of going to local property records for data. One of Mr. Calomiris's complaints is that house prices in these markets may be doing worse than those in other places.

You might argue that down is down, no matter what measurement is used. But the degree of down - and its duration - creates perceptions that inevitably lead to purchasing decisions and general economic confidence. If you think the slowdown - or downturn or whatever it is we're having - will bottom out this summer you'll be far less panicked than if you're convinced that it will last through 2008 and into 09. So the numbers are a big deal - even if no one can quite agree on them. The always entertaining Chris Thornberg, former UCLA Anderson economist who is now at his own firm, Beacon Economics, offered this to the OC Register's Jonathan Lansner: "UCLA recently reported they expected prices to bottom out in mid-’08. UCSB claims the economy is just fine, outside of construction. This is definitive proof to me that California’s medical marijuana laws are clearly being abused."