Index Fever: Behind The Home Sales Headlines

by Alex Stenback on March 25, 2008

With Today’s release of the Case-Schiller home price index showing record declines, and the new OFHEO Monthly Index (PDF!) hitting the street, it is appropriate to point out a fact the we’ve discussed before:

There is no such thing as a "National" real estate market.  Or, put another way: National real estate statistics don’t necessarily have any meaning or import for our local market, and as we’ve explained before, even the idea that there is a homogenous "Twin Cities" real estate market is misleading. 

For instance, we know from last week’s post that Twin Cities Home Prices declined 12.5% in February, but if we drill down further into the data, you’ll find some surprising variation.

In Minneapolis, comparing February 2008 with February 2007, the Average Sales Price declined 19.4%. Within that figure, however:

  • Longfellow average sales price declined 37.2%
  • Northeast Minneapolis average sales price increased by 7.6%

Get outside of Minneapolis into the suburbs, and there is a similar story:

  • Edina’s average sales price swelled by 14.1%
  • Minnetonka’s average increased by 26.2%
  • Saint Louis Park’s average sales price decreased by 2.7%
  • Golden Valley’s Average Sales price declined by 19.7%

Now, the above numbers can be skewed by sample size (in Minnetonka, there were only 21 closed sales in February, Saint Louis Park only closed 34) and seasonal variations, so this data may speak to how little real estate activity there actually is, as much as it describes the hyper-local nature of real estate price fluctuations. 

But you get the point.

Anyway, the preceding paragraphs are a very long segue into this point: Take any headlines relating to the real estate market with a dose of salt, and consider your source, and read the full content critically. 

Yesterday’s existing home sales report is a prime example.  Let’s look at a few headlines:

Existing Home Sales Post Surprise Rise [Rueters]
Existing Homes Sales in US Unexpectedly Increased [Bloomberg]
Home Resales Pick Up [NYT]

Headlines like that might lead the casual observer to conclude that the worst is behind us, and the real estate market is on the mend.  But a deeper look at the underlying factors might lead to a different conclusion:

  • The reported 2.9% rise in home sales only represents a rise in February as compared to January – two notoriously slow real estate months subject to a lot of seasonal statistical "noise," weather, etc.
  • Compared to February of last year, February 08 home sales have declined 23.8%
  • Inventory remains elevated, and prices continue to decline precipitously in many areas.

Does not present quite the same rosy picture, does it?

Believe us when we say we are as anxious as the next person for a return to a normal, balanced real estate market – and since these decisions are almost never made on the basis of price alone, even now there remain many good reasons to buy.  Just be sure to dig deeper than headlines and National AP articles if you want to take the pulse of your hood.

Data and Stats Courtesy of The 100, By MAAR []

{ 7 comments… read them below or add one }

Tyler March 25, 2008 at 7:04 pm

Alex – Super comprehensive post with TONS of facts to back it. Great job. I hate it when the media acts like real estate can be summarized with national statistics.

b March 25, 2008 at 11:31 pm

One other thing that is left out of some of those stats is the median price per square foot.

If overall the mix of house sales in any area is relatively homogenous, then there is probably only the price increase/decrease to consider.

However, what if in a market like Edina only the larger homes are selling?

Without knowing how much house the median price will buy, the numbers are not as meaningful (your post uses the term ‘average’ – I assume you meant median?).

Alex/Editor March 26, 2008 at 8:43 am

In the case of specific neighorhoods and cities, we are actually using average sales price, not Median, since that is the only data the MAAR has made available at that level.

So in some sense we are playing fast and loose with the various statistical measures to make a broader point.

There is really no “perfect” measure of market value for real estate. Average has the Bill Gates effect (Bill Gates walks into a bar and everyone is a millionaire, on average.) Median tends to get meaningless when the sample size dwindles. Price per square foot can be equally misleading, as even small differences in calculated finished square feet result in fairly wild price swings.

At the end of the day, all of them bear watching, but because housing stock is so tremendously varied, no home is worth “a number” – the pricing mechanisms are just not able to be that precise.

No matter hwo closely you analyze comparable sales, statistical measures, etc., some people will overpay, some will get a deal, and most will wind up with something close to a fair price, but the only way to truly know this is in retrospect. There will also be intangibles that some buyers value, and others don’t, so there’s that human element at work here as well.

This of course brings the argument full circle, and speaks to the utility of ALSO using broader market trends that capture the price movement across a metro area or region to underpin any analysis of a hyper-local market.

Devin March 27, 2008 at 9:23 am


Great post. While I would agree that real estate is local, it’s hard not to see this as a national problem that is and will continue to affect the Twin Cities. If I look at the Case- Shiller graph provided below with all of the markets on one graph, it becomes quite obvious that something happened nationally to drive prices up. In some regions the affects were greater (CA, FL) and in some regions the affects were not nearly as great (Dallas, Charlotte), while then there is Chicago and us somewhere in the middle.

When one considers that the Pioneer Press reports that Ramsey County is expecting 3,000 foreclosures this year and then look at City Data to find out that less than 2000 homes sold in the first 3 quarters of 2007 (I’d be curious if you have different numbers) and you realize that this is a problem that’s likely to drag down home prices across the board. It just may take a bit longer for the wealthier folks to feel the pain.

Alex/Editor March 27, 2008 at 10:06 am

A very good point Devin.

This whole thing was fueled by the termendous expansion of credit and generational interest rate lows.

I’d expect, in the aggregate, most metropolitan markets to fall commensurate with their rise, so the only question that remains is then, just how overvalued did we get in (and within) the Twin Cities – 10%? 20%? 30%? – as compared to the long term historical norms. It would stand to reason then that the local areas that saw the most gains, will also suffer the greatest losses.

In some sense, we can think of the ongoing unwind of the real estate market like gravity, and the overheated cities, towns, and localities like Icarus, who flew too close to the sun only to come crashing down.

Nate March 27, 2008 at 3:37 pm


I still think you are correct in pointing to differences in specific neighborhoods. At a high level analysis the market will most likely correct back to historic norms, a point I’ve argued before. Within the “Twin-Cities” market individual neighborhoods will change at different rates. You have to figure from the beginning to the end of this cycle we will be talking at least 10 years, possibly 20 or more since I track this back to 1995.

In that 10-20 years individual neighborhoods will change; schools will get better or worse, crime will improve or deteriorate, mass transit systems will be installed, etc… These micro events will alter how each neighborhood is affected by the bubble bursting. While on a macro level the entire region will reset to historic norms.

devin March 31, 2008 at 11:36 am


Absolutely. I was just discussing this issue with a coworker who used the analogy of gravity as well. Economic laws (and even to some degree human nature) operate on certain rules just like gravity. You may be able to break the rule for a while, but ultimately the economic laws win.

This should get more interesting as talk of freezing mortgage rates or foreclosures increases. While it may seem like these measure fix the problem, they merely cause further disruptions in other areas (buyers, interest rates, banking, etc.).


Things will continue to be quite local, but I’m curious about how quickly the unwind will happen. 10 years to unwind or will this thing unravel at a faster clip. Additionally, I’d complete agree that things kicked off in the mid-nineties.

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