You've probably heard the Case-Shiller Index mentioned repeatedly in the news. Maybe you know it has something to do with home prices and the housing market. But what is this index, exactly, and how does it affect you?
What Is the Case-Shiller Index?
The Case-Shiller Index was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller. The trio later formed a company to sell their research; that company was purchased by Fiserv, Inc., which tabulates the data behind the index. The data is then distributed by Standard & Poor's.The index, formally known as the S&P/Case-Shiller home-price index, is actually not one index at all. There are really 23 indexes:
- The national home price index, which covers nine major census divisions. It is calculated quarterly and published on the last Tuesday of February, May, August and November.
- The 10-city composite index, which covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC.
- The 20-city composite index, which includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa.
- Twenty individual metro area indexes for each of the cities listed above.
The indexes, aside from the national index, are published on the last Tuesday of each month at 9am EST. There is a two-month lag time in the data that is reported, so the report issued in May only covers home sales through March.
Each index measures changes in the prices of single-family, detached residences (also known as houses) using the repeat-sales method, which compares the sale prices of the same properties over time. New construction is excluded - since these houses have not been previously sold, there is no way to calculate how their sale prices have changed until they have had two owners (at which point they are no longer new construction). Condos and co-ops are not included in any of the major indexes; however, there is a separate condo index that tracks condo prices in five major markets: Boston, Chicago, New York, Los Angeles and San Francisco.
The types of sales tracked by the Case-Shiller indexes are called arms-length sale transactions. These are transactions where the home was sold at market value and the sale price data can be used to get an accurate snapshot of the housing market. A transaction where a mother sold her home to her son for a favorable, below-market price would not be included in any Case-Shiller index because it doesn't accurately reflect overall housing market activity. Foreclosure sales are included in the indexes because a sale between a bank and an individual is considered both arms-length and a repeat sale.
Also excluded from the index are properties whose designation changes (a property that was recently considered a house but is now a condo wouldn't be included), sales right before or after a property has been dramatically changed (like a two-bedroom house remodeled to a five-bedroom house) and transactions that appear to have data errors (a home once sold for $100,000 later reported as sold for $10,000, for example).
Why Home Prices Matter
Obviously, if you're looking to buy or sell a residential property, you'll be interested in whether home prices are going up or down and by how much. If you're selling and prices seem to be increasing, you might want to hold off selling while you wait and see if prices keep going up. If you're buying and you see prices going up, you might want to speed up your purchase decision while there are still deals to be had. Or if prices are declining, you might want to see if you can hold off on your purchase while prices continue to sink. Of course, no person or index can really predict what will happen to home prices.Even if you're not buying or selling a home, home prices are an indicator of how the broader economy is performing. Do people feel confident that now is a good time to make a large, expensive investment? How well is a particular geographic region performing economically? How are businesses that have a large stake in the housing sector performing? The Case-Shiller Index provides insight into all of these questions.
It's even possible to take advantage of changes in home prices indirectly by investing in S&P/Case-Shiller Home Price Indexes (CSI) futures and options. This type of investment is recommended for businesses such as property and real estate developers, banks, mortgage lenders and home suppliers to help them mitigate the risk of their large stakes in the housing sector. Even businesses that have little or nothing to do with housing may want to invest in these products to diversify the investment risks they are exposed to. (Not sure what futures and options are? Check out our tutorials on Option Basics and Futures Fundamentals.)
Finally, many people have at least as much, if not more, invested in their homes as they do in stocks. Home price movements thus have a significant impact on the total value of their portfolios.
Alternate Housing Indexes
The Case-Shiller indexes, though perhaps the most well known, are not the only ones tracking home prices.The U.S. Federal Housing Finance Agency (FHFA) publishes a quarterly housing price index that it has cleverly named the HPI (or Housing Price Index). It uses the Case-Shiller repeat-sales method for its calculations, but it covers 363 metropolitan areas and includes refinances, not just sales. According to the FHFA, this index only covers "single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975." Very large mortgages known as jumbo mortgages are not purchased or securitized by Fannie Mae or Freddie Mac, so these mortgages are not included in the index. (Learn how the government sponsored enterprises contributed to the financial crisis in 2008 by reading Fannie Mae, Freddie Mac And The Credit Crisis of 2008.)
A company called First American CoreLogic produces the LoanPerformance Home Price Index. It also uses repeat-sales data, but is much more comprehensive. According to the company's website, their data covers "6,070 ZIP codes (58% of total U.S. population), 519 Core Based Statistical Areas (CBSA, 85% of total U.S. population) and 898 counties (81% of total U.S. population) located in all 50 states and the District of Columbia."
The IAS360 House Price Index is published monthly and covers price trends in four U.S. Census regions, nine U.S. Census divisions and 360 U.S. counties for single-family detached home sales. Though the IAS360 only includes arms-length transactions, it does not use the Case-Shiller method, saying that "it significantly limits the number of transactions available to define the trend which may be exacerbated in slower market conditions." Instead, the IAS360 uses proprietary technology, because it believes that its county-level data are more useful than data tracking "broad geographical areas." One key aspect of the index is that it is published with only a one month lag compared to the two month lag of the Case Shiller, making it a timelier indicator.
Foreign Housing Price Indexes
Furthermore, the United States is not the only country that produces housing price indexes. Here are a few examples of other countries that produce housing indexes:
- Canada's major index is the National Composite House Price Index. It also uses the repeat-sales method, and it combines data from single-family home sales in Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax.
- Ireland's permanent tsb House Price Index is produced by the Irish bank permanent tsb, which owns about 20% of the country's residential mortgage loans. This index takes a home's size, type, location and other characteristics into account using a complex technique known as multivariate linear regression analysis.
- The United Kingdom's major index is the Halifax House Price index, named after Halifax, the U.K.'s largest mortgage lender. It also uses multivariate linear regression analysis.
Conclusion
The Case-Shiller index is a widely used and respected barometer of the U.S. housing market and the broader economy. Now that you understand what it is and why it's important, the next time you're reading the newspaper or watching the news, you might pay a little more attention when you hear about the Case-Shiller Index.
Sunday, March 6, 2011
Understanding The Case-Shiller Housing Index
Audition for The Old Globe Summer Intensive!
If you know an aspiring actor of high school age, tell them about the auditions for the summer Shakespeare Intensive at The Old Globe!
The auditions will be held on Saturday, March 19th and Sunday, March 20th on the campus of the Old Globe. The Summer Intensive will be held on weekdays, July 18 – August 15. The program cost is $600 with a limited number of need-based scholarships available. During the Intensive the students will study classical theater technique, voice, movement and stage combat led by theater professionals while rehearsing for two productions of Shakespeare’s plays. The program will culminate with a performance of the plays in the outdoor Lowell Davies Festival Theatre on Monday, August 15th. This year the students will perform 50-minute versions of both The Comedy of Errors and The Merry Wives of Windsor.The Intensive presents students with the unique opportunity to study Shakespeare while observing the productions of the Globe’s Shakespeare Festival, which runs concurrently with the program. Festival company members are able to lend the students insights into the art of performing Shakespeare that they then apply to their own performances of the Bard’s work. Last year, while rehearsing for their sold-out production of Shakespeare’s As You Like It and Twelfth Night, the students attended workshops conducted by Michael Stewart Allen, Don Carrier, Ray Chambers, Christian Durso and Adrian Sparks.
The Old Globe is located in San Diego’s Balboa Park at 1363 Old Globe Way. There are numerous free parking lots available throughout the park.For more information on the Intensive please visit www.TheOldGlobe.org/SummerIntensive.
Friday, March 4, 2011
Cash Buyers Break the Bank
All-cash home sales are setting records in market after market around the country as investors account for a growing share of home purchases and individual buyers, especially first-time buyers, fade as mortgage rates rise and home buyer demand softens further.According to the National Association of Realtors, buyers paid cash for 23 percent of all homes bought in January, the highest share since NAR started measuring cash versus credit sales in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.
"Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it's not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes," Yun said.
Washington DC's MRIS, the nation's largest MLS, reported yesterday that cash purchases jumped 35 percent in 2010, to 16.4 percent of all purchases in 2010, 12.1 percent of all purchases in 2009. But the cash bandwagon is rolling even faster other major markets around the country.
The hottest cash hot spots are in California and Florida, popular investor markets.
Cash buyers accounted for a record 30.9 percent share of the Golden State's houses and condos in January as low prices lured investors and others, according to San Diego research firm DataQuick Information Systems.Almost three out of 10 homebuyers in San Diego County in January closed with cash, the highest it's been in 21 years.
Some 28 percent of new and resale homes bought in the county last month had no records of mortgages, matching the percentage of cash purchases one year ago during the same time. In the nine-county Bay Area, 28.7 percent of homes sold in January did not show a record of a mortgage, compared with 26 percent a year earlier. That was a record for the region, which has averaged about 12.4 percent of monthly sales being for cash over the past decade, according to DataQuickIn January this year, a record 23.4 percent of the homes sold in the Seattle Metro were purchased by buyers paying cash, compared with 21.0 percent in December and 19.6 percent in January 2010. The monthly average is 11.3 percent since 1994, when DataQuick's complete statistics begin for the Seattle region.
"Most sellers would rather deal with the certainty of cash rather than the uncertainty of buyers who need to qualify for a loan," said Andrew LePage, an analyst with DataQuick told the San Diego Union Trib. "Some of this is from investors using cash so they'll be first in line when there are multiple buyers bidding,"
Cash sales in Las Vegas, another destination popular with investors, accounted for 54.5 percent of total January sales. Last month's level of all-cash purchases was up from 50.6 percent in December and 50.4 percent a year ago.
About 54 percent of home purchases in Palm Beach, Broward and Miami-Dade counties were cash buys in the final quarter of 2010. That's about 7,530 homes and condominiums between October and December that were paid for in cash.
In South Florida's real estate zenith of 2006, just 13 percent of sales were in cash. In pre-boom 1997, cash buys made up 31 percent of the market.
Of 11 major metropolitan areas in the country, South Florida had the highest percentage of cash buys in the fourth quarter of last year.
"I haven't pulled a mortgage in six months," said Corcoran Group agent Anthony Pizzarelli, who specializes in downtown West Palm Beach condos told the Palm Beach Post. "You just have a lot of people with a lot of cash running around."
Thursday, March 3, 2011
How Your Credit Score Affects Your Mortgage
When my wife and I bought our first home (circa 1993), we had no idea what our FICO score was. Back in the day, you couldn’t simply fire up the computer and check your score. In fact, we applied for our mortgage over the phone, not over the Internet. My, how things have changed!
But one thing hasn’t changed—the importance of a good FICO score when it comes to getting a mortgage. Not only will a good score help you qualify for a home loan, but it will also help you get the lowest rate possible. If you plan on taking out a mortgage—which almost all homebuyers do—understanding how your credit score affects your mortgage rate can mean saving thousands of dollars over the life of the loan.
[In Pictures: 10 Smart Ways to Improve Your Budget.]
When you take out a home loan, you of course have to pay interest on the money that you are borrowing. The amount of interest you pay on a fixed rate fully amortizing loan is a function of three things: 1) the amount you borrow; 2) the term of the loan; and 3) the interest rate, which is expressed as a percentage. The mortgage rate you receive depends heavily on your credit score. For this reason, let’s get a basic understanding of your credit score.
Each of the three major credit bureaus (Equifax, Experian, and TransUnion) collect information on you about your practices of borrowing and paying back credit. This is compiled into a credit report, from which a credit score is calculated. While there are multiple formulas for calculating credit scores, the formulas introduced by the Fair Isaac Corporation are the most widely used. When you hear the term FICO score, know that FICO is short for Fair Isaac Corporation. All these scores can be a bit confusing, so it might be useful just to think of “credit score” as a numeric grade of your credit history.
Lenders consider many factors like employment, salary, savings, and debt-to-income ratio when they determine your mortgage rate. However, your credit score is a key indicator of the rate you will likely receive. Fair Isaac Corporation looked at thousands of financial lenders to come up with the current mortgage rates provided to borrowers given their credit score. Let’s look at the credit rates for people with three different credit scores:
• Credit score of 620: 6.2 percent
• Credit score of 700: 4.8 percent
• Credit score of 780: 4.6 percent
Clearly, your credit score significantly impacts your mortgage rate. But let’s apply these scores to a real scenario to see how much a good credit score can save you and how much a bad credit score can cost you. Let’s say you are looking at a $250,000, 30-year fixed mortgage. If you have a credit score of 620, you are considered a riskier, subprime borrower. You will be making a monthly payment of principal and interest of $1,527, which amounts to $299,821 of total interest paid over thirty years.
If you have a better credit score of 700, you are considered a less risky, good borrower. You can expect to pay $1,313 monthly for a total of $222,689. If you have an extremely favorable credit score of 780, you fall into the top-tier range of borrowers, and lenders will very likely offer you a lower mortgage rate along with more loan choices. Your monthly payment will be $1,280 for a total of $210,681.
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As you can see, having a score of 780 instead of 700 does not make much of a difference in your mortgage payment. Over thirty years, the difference is about $12,000. However, having a credit score as low as 620 can cost you dearly. You will pay hundreds of dollars more each month and tens of thousands of dollars more over the lifetime of the loan. If you can improve your score, you can save tons of money. Specifically, if you raised your score from 620 to 700, you could save an extra $77,133. If you raised it even higher to 780, you could save $89,140.
Building a great credit score is extremely important to obtaining a good mortgage rate and saving boatloads of cash. Also, remember that although credit scores can reach as high as 850, you don’t need to worry too much about obtaining a perfect credit score. Fair Isaac Corporation suggests that lenders don’t differentiate much between someone having a score of 720 and someone having a score of 820. Once you reach that score of 720, you will likely receive the lowest mortgage rates available. Start small, improve your FICO score, and bask in the mortgage savings that you earned.
How To Check Your San Diego Home For Sale Market Value
It is extremely beneficial when you're buying, selling or refinancing property to know the value of a San Diego home for sale or condo. Ask a San Diego realtor to help you analyze your property's market value if you are a home owner in San Diego and would like to determine the value of your home or condo. For many potential home sellers or buyers this is a complimentary service given by almost all of real estate agents.It is essential for evaluating the market value of a property to have a qualified method and complete current market understanding. Because of that, instead of utilizing web based real estate valuation programs, it is usually far better to opt for a realtor. Depending on a realtor intricate familiarity with community market conditions as well as comparable homes in the community, he or she provides the exclusive advantage of offering you an accurate estimation of your San Diego properties value.
Your San Diego realtor need to take several things into account any time he or she assesses your San Diego property. Here are the factors:
Property usage. Your house's market price based on exactly what its last use has been - as a primary house, secondary home, vacation residence or rental and your real estate professional is going to assess that. Various kinds of homes have different prices.
Property or home type. The current price of you house is going to differ based on it is type, whether it is a single-family residence, multiple-family home, condo, town house, etc.
Property size. In general your home valiue is proportional to its size, the bigger the size of the property, the more value it has.
House living space. In general, houses with additional square footage are likely to worth more than smaller houses and your realtor will certainly determine the square footage of your home to determine the amount of living space your house includes.
Condition of your property. Condition of your house will certainly effect the house's valuation. The realtor will certainly review the condition of your property and also at this point to help you enhance the value of your house he/she could also advise improvements.
Home architectural style. Modern residence design increase price to your San Diego property.
Your home age. The principal that newer properties usually attract higher prices than identical older houses is true, but it doesn't apply to exclusive San Diego homes or historic homes.
Your Home facilities and features. Your realtor also evaluates the various characteristics your San Diego house includes for instance the amount of bedrooms, bathrooms, fireplaces, type of cooling and heating systems, amount of space for car parking, storage, and many others
Nearby Amenities. San diego real estate values tend to be higher when they are located close to the shore, educational institutions, shopping malls and other facilities than properties which are not close to such facilities.
Recent Comparable Sales - The value of most recently purchased San Diego homes for sale in your area which are most similar to the your San Diego residence for sale will probably be evaluated by your real estate professional.The bottom line is, in case you are a possible San Diego residence seller, seek the services of a local realtor who will not only help you develop a marketing strategy to assist you sell your property on time, but will determine your current home's market value.
Wednesday, March 2, 2011
Falling Cows, Huh ???!!!
Cheese for a Healthy Heart
Cheese for a Healthy Heart?
We often think of cheese as that artery-clogging no-no on top of pizza. But a new study suggests cheese might actually be good for your heart -- if you choose low-fat.
Yep. In a study of middle-aged adults, frequent servings of low-fat dairy products appeared to significantly reduce levels of heart-hampering inflammatory compounds.
Say Cheese
The researchers measured blood levels of three inflammatory markers: C-reactive protein (CRP), interleukin-6, and tumor necrosis factor-alpha. And all three compounds were significantly lower in people who got 11 to 14 servings of low-fat dairy products each week compared with people who got fewer than 8 servings. It's good news for your taste buds and your heart, because reducing the number of inflammatory compounds in your body may help protect you from heart disease. (Taking this vitamin may help bring down bodywide inflammation, too.)Do More Dairy
Full-fat versions of dairy products are rich in saturated fat, and that means trouble for both your heart and your waistline. But low-fat and nonfat versions are rich in protein, B vitamins, and minerals that have been credited with everything from reducing the risk of high blood pressure to lowering homocysteine -- a protein linked to heart disease. In the recent study, a cup of low-fat milk or yogurt or an ounce of cheese each counted as a serving. And every little serving helped. Eating just one extra serving of low-fat dairy per week resulted in a measurable decrease in inflammation. (Not a fan of dairy? Here are six other foods you should eat to keep your heart healthy.)via realage.com
