Tracking home prices

Date posted: August 25, 2011

Changes in home prices have become a very important part of today’s economic situation. On the surface, a person might think that following home prices is really quite simple — you just take an average of the prices of homes sold and compare those numbers over time. But, as N.C. State University economist Mike Walden explains, it’s not that easy.

“Two big issues here: First of all, not all homes are sold every month. So we never have a total survey of all homes. And secondly, the homes that are sold each month are going to have slightly different characteristics. So, you really have to be very careful in making home comparisons, home price comparisons.

“And they’re really two types of measures out there: One measure does track the prices of homes actually sold, and they tend to either track all homes sold or only new homes sold. Now they’re not going to do anything with how those characteristics differ over time, but those are numbers out there.

“Another set of numbers tracks the prices of homes that have been repeatedly sold. So that’s going to be a smaller sample, but it’s going to allow you to control, hopefully, better for changing characteristics of the home, like bigger homes, smaller homes, a number of bathrooms, et cetera.

“Now if we look at these two fundamentally different measures, what we do see is consistency over the last couple of years. They’ve all shown a decline in home prices, but of differing magnitudes. The magnitudes range between 15 percent decline over the last three years to over 35 percent decline.”

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