Financial Markets Take on Current Real Estate Market

Wall Street celebrated a second month in a row of home price increases in twenty major cities. Their measure is different from mine -- and its methodology cannot even be applied to a market as small as Flagstaff. But, if they are happy, it means our IRAs and 401(k)s will go up, even if our home prices here in Flagstaff won't (at least not for a while -- eventually, yes).

Home prices by their measure were still down over 15% from last year in June. As I wrote, again, recently, that's not all bad - it will get home sales moving.

The index Wall Street watches most is the Case-Schiller index. It tracks real estate markets in 20 major cities. It happens that these are the highest priced areas in the country and, therefore, some of the hardest hit in the housing slowdown. Another limitation of the index is that the Case-Shiller methodology excludes homes that have had improvements in an attempt to account for the fact that the new buyer is purchasing a home that is really different from the home that the seller purchased. By this exclusion, however, the index eliminates the relatively attractive homes and limits its measurement to what are generally called "outdated homes." This methodology becomes statistically insignificant in a smaller market like Flagstaff, which is why the index tracks only major cities.