Tuesday, October 1, 2019

How to Analyze and Utilize Case-Shiller Housing Index

California Housing Market Trend 
Los Angeles, San Diego and San Francisco 

The above indices shows that while the Southern California housing market – Los Angeles and San Diego – has still been inching up (as of this writing), the San Francisco market has been range-bound, moving sideways, for the last one year.

The recent green-shoots, since Q1-2019, could be attributed to the interest rates, meaning the fast decline in interest rates in recent quarters might have contributed to an enhanced activity leading to a short and perhaps temporary upswing in these markets. Of course, the San Diego and San Francisco responded more prominently than the Los Angeles market as the latter is generally more prone to the foreign cash  buying, hence the response has been muted.

The activity of the most recent month, July-2019, could be an aberration due to the lack of (data) liquidity; as the new data points come in, the sudden decline in Los Angeles might get moderated.

Nonetheless, the rate of growth in prices in 2017 in all three local markets was phenomenal. Of course, in terms of the overall growth between January-2017 and July-2019, San Francisco, despite the recent consolidation, has been leading the way. In fact, between January-2017 and August-2018, San Francisco registered an overall growth of 14.54% while Los Angeles and San Diego lagged behind at 9.95% and 9.15%, respectively.

By the same token, in terms of the volatility, the San Francisco market continues to be the front-runner here as both volatility indicators, Standard Deviation and COV, are significantly higher than those of Los Angeles and San Diego. The COV is a better indicator of the volatility than the Standard Deviation as it is normalized by the Average.

The above examples are based on Case-Shiller’s seasonally-adjusted indices so the month-over-month comparison is fine. While using the seasonally unadjusted Case-Shiller indices, one should compare July 2019 with July 2018 and July 2017, etc.  

Sid Som
President, Homequant, Inc.

Link to the Book

How Case Shiller Indices Have Taken Over Housing Data Analytics (and How You can Benefit from them) 

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