People generally understand that real estate is local. The markets are driven by regional economies, which ultimately depend on the number and type of jobs in the area. Therefore local data is more relevant than national data in most real estate decisions. Local data is gathered, analyzed and published by diverse groups and individuals that range from specialty firms to local bloggers. Because every home is unique and towns have wide ranges of home types, the analysis of real estate data is not an exact science.
National data is more commonly cited by both media and homeowners despite the general understanding that real estate is local. It satisfies our inherent need for simplicity, and seems to serve as Wall Street’s proxy for the real estate market. One of the highest profile national housing indicators was developed by Connecticut’s own Dr. Robert Shiller, a Yale University economist. He has published data on US housing prices back to 1890, which is illustrated via roller coaster in the video. He also worked to create the S&P/Case-Shiller Home Price Index with collaborator Karl Case.
Shiller’s methodologies for gathering historical data have recently been questioned by another economist, who claims Shiller understates the long-run rate of increase of home prices. The source of the concern is that Shiller’s team used different data sources and gathering techniques for different historical periods, leading to inconsistencies.
But why are we getting so upset about problems with national data? We know that even the current national statistics and indices have limitations, so it doesn’t seem terribly surprising that we need to look at the historical data with a careful eye. Perhaps the issue is that the long-term increase in home prices is THE critical input that drives the “homes are a fabulous investment” argument.
The reality is that residential real estate can be a good investment, or it can be a poor one. The state of the local markets and the characteristics of individual properties are both important factors. While real estate is an investment, it is more than dollars and cents. Residential real estate provides a benefit that stocks and bonds never can - a place to call home.
The first priority when considering a purchase is to find a property that you will enjoy inhabiting. It should be located in an area where you feel comfortable and have the space and features that you need to be happy. The second priority is making sure that you negotiate a fair price for the market and property conditions at that point in time. Since most people only own one home at a time, and moving is expensive, it’s not necessarily worthwhile to try to time the market.
Besides, nobody really knows where the market will go next, though I suppose we could check the futures on the S&P/Case-Shiller Index for a hint…
