Thursday, January 17, 2008

Economist's Notebook: Getting it Right on Home Prices

This from the pet peeve department. The Oregonian this morning has a front page headline:

"Portland Home Values Tick Up"

But this is an inaccurate statement. It should read "Portland Home Transaction Values Tick Up." You see, median home sales prices don't necessarily tell you anything about appreciation of home values. It does give some information about market conditions - the median value of a home transaction - but that is all. This could decline due to deprecation of home values OR simply because more lower priced homes are being sold relative to more expensive ones than before. This is why the Case-Shiller index is so good, they track same-home sales to track the appreciation of home values. In other words, they look at houses that have sold multiple times, adjust for improvements, and see if prices have increased or decreased.

The first sentence in the article is even worse: "Portland-area homeowners saw modest growth in home values in December..." NO! You cannot draw this conclusion from median home sales data.

The Oregonian is not alone in this, almost every newspaper makes this same mistake. Editors should insist on accuracy.

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