Most housing indexes overstate downturn -analysts

NEW YORK, March 30 Mon Mar 30, 2009 4:34pm EDT

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NEW YORK, March 30 (Reuters) - Most closely watched U.S. home price measures lack enough local data to truly reflect house values and are overstating the extent of price drops, executives at a real estate analytics firm said on Monday.

Some key markets in those indexes are dominated by distressed foreclosure sales, exaggerating the price weakness that is often extrapolated to the national market, the co-founders of Collateral Intelligence said on a conference call conducted by UBS.

Closely watched indexes cited by the firm's co-founders, Michael Sklarz and Norm Miller, included those provided by Standard & Poor's/Case-Shiller, U.S. regulator the Federal Housing Finance Agency -- formerly the Office of Federal Housing Enterprise Oversight (OFHEO) -- and the National Association of Realtors.

"Some of the widely followed indexes such as Case-Shiller, OFHEO, NAR and so on are way too broad to be meaningful," said Sklarz, the Honolulu-based president of Collateral Analytics as well as a co-founder of Collateral Intelligence.

"To properly track the real estate market you really need to get down to all the local markets," Sklarz said. "Now we have the tools to properly track that. So why track these overly simplistic indicators that can be very biased, as they are in the current environment, when there's so many more complicated things going on in the market?"

Collateral Intelligence does not publish competing monthly indicators. Collateral Analytics is preparing to launch an index, a spokesman said, without specifying the timing.

While the S&P/Case-Shiller regional indexes show a 26 percent slide in prices since the peak in mid-2006 and the S&P national index shows a more than 18 percent in the 2008 fourth quarter from a year earlier, Miller said a more realistic estimated drop is in the 12 percent to 15 percent range for the typical homeowner.

"What we find is that on the way down, Case-Shiller overestimates the decline by about 10 percentage points or so, and on the way up will do the same thing," said Miller, who is a professor at the University of San Diego's Burnham-Moores Center for Real Estate as well as a co-founder of Collateral Intelligence.

The typical homeowner's price change probably is about 50 to 60 percent of the downturn shown by the index, he said.

David Blitzer, chairman of the index committee at S&P, defended the S&P indexes. "We believe that our indices are accurate and reliable and provide a fair representation of what's going on in housing in the United States," he said.

As for the question of foreclosures or distressed sales distorting the indexes, Blitzer said they must be included. "If you only want to include cases where people hold out for the best price, you'll get a much happier index but it would not be an accurate representation of the market."

The S&P/Case-Shiller indexes of 10- and 20-metro area home prices for January will be reported on Tuesday.

Sklarz and Miller said the existing indexes often lack the zip code and neighborhood details that prove that housing is local, not national, and most of the measures are not comprehensive in terms of loan sizes and quality.

Inventory levels and the number of days a house sits on and the number of days a house sits on the market before being sold or delisted need to be looked at closely as more fundamental concerns like unemployment, they said.

Some individual housing markets are bottoming now, and some will in the next year to 18 months, Sklarz and Miller said on the conference call.

The key question is whether President Barack Obama's economic stimulus will stymie the leap in joblessness that keeps the housing market from turning around, they said.

Unemployment is at a 25-year high and has yet to peak. Sklarz and Miller estimate that within a half a year defaults and foreclosures will reach their cyclical highs. (Editing by Leslie Adler)

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