The Case-Shiller index has been one of the key tools used to illustrate the US housing bubble, and it's deflation. It was developed by two economists, Karl Case and Robert Shiller. If you haven't checked out Mr. Shiller before, he's got some very interesting reads - specifically Irrational Exuberance and recently Animal Spirits.
At any rate, the index removes the problem associated with comparing an Apple (a 2 bedroom house) with an Orange (a 4 bedroom house) that results from merely looking at the average or median house price index. It does this by using resales data to form price pairs over time which can then be used to look at movements in price. As an example, 150 Robertson Street is sold for $150,000 in March of 2000, it is then resold for $200,000 in March of 2003. This forms 1 price pair and 1 data point for a Case-Shiller Index, over 3 years the price rose 33% so March 2003 relative to March 2000 for this property is 1.33. As an example, lets say that there are 5 other properties that are also resold in the same time period in the same area (bought March 2000, resold March 2003) that have increased in value by 25%, 43%, 10%, 32% and 18%. As such the Case-Shiller index for March of 2003 relative to March 2000 would be (1.33+1.25+1.43+1.10+1.32+1.18)/6 = 1.26 saying that on average property values have increased by 26% over the 2000 to 2003 time period. This is probably an over simplification, but it does get around some of the problems associated with looking at the average, when the average likely contains some pretty significant changes in the mix of properties being sold.
Now if only I could get my hands on some sale pair data to calculate a Case-Shiller index for Victoria, if only we had such a data-set available!!!! Oh wait we do (BC Assessment I believer), if only it was in a more accessible format.
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can you provide a link to the resale data on BC assesments?
ReplyDeleteI am pretty good with databases, and have some friends who program for a living, i might be able to make something useful of that info.
The BC assessment just provides the assessed value for 2 years (2007 and 2008) and can be found at their website. You can look up the assessments by address, but as far as I can tell they don't really have a more user friendly access (ie. downloadable access file)...
ReplyDeleteThe Teranet data is interesting...there's an index for Vancouver.
ReplyDeletehttp://www.housepriceindex.ca/
Just popped over to say hello.
ReplyDeleteBack in 1991, I did do a Case Schiller paired sales analysis for Victoria. But I have never updated the file since. In 1991 it took me three weeks of 8 hour days to enter the data into a lotus 1-2-3 programme. I now use a median analysis to compare point in time values to another point in time which only takes me five minutes to do.
Hello
Robert,
ReplyDeleteA programme that you would write is known as an automated valuation model (AVM) the most well known is Zillow and CMHC's emily programme. Landcor out of Vancouver is our equivalent, it buys data from BC Assessment, land titles offices, and the real estate boards, does some analysis and then sells it to lenders and the general public.
It looks pretty, but has a long way to go before the AVM is consistently reliable. The banks uses these property/assessment tools for most of the common everday mortgages.
Generally, the AVM is good, when used as a cross check, to the loan applicants declared value or an Appraisal Instiute report.
It is not good, when used as the only source of value estimate with the programme given to those with a direct financial interest to input the data. Mostly because, the AVM can and is tweaked to get a desired value, thereby defeating the AVM's original purpose.