By Lynn Adler
NEW YORK (Reuters) - Standard & Poor's/Case-Shiller indexes do not adequately reflect U.S. home prices, mainly because the monthly reports are based on repeat sales and exclude new development, said Jonathan Miller, executive vice president and director of research for Radar Logic.
"The basic premise is flawed," Miller, speaking at the Reuters Housing Summit, said of the Case-Shiller indexes.
S&P-Case/Shiller produces a closely watched monthly index as well as a quarterly gauge of home prices in the top 10 and top 20 metro areas.
Using a repeat sales method, the home price change of a house sold now would compare with the last time it was sold, which could be years ago, Miller said.
"When you do a repeat sales index, you exclude all new development because there was no prior sale," Miller added. "They also exclude condominiums, so you are covering the New York City market, and you're not including condominiums, yet you're representing that that's the New York number."
The biggest problem with excluding new development, he said, is that it influences prices of existing properties in that market.
The Case-Shiller indices are a "great concept if you are measuring existing housing sales in suburbia," Miller said. "It's a very academic approach, and it's technically correct. However, it doesn't represent the actual cities that are being covered accurately, in our opinion."
David Blitzer, managing director and chairman of the Index Committee at Standard & Poor's, countered that the repeat sales method captures the broadest swath of the housing market and provides a uniform source of comparison. Continued...
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