Mark Hanson comments on the recent upswing in real estate prices as indicated by the highly regarded S&P Case-Shiller Home Price Indexes. It seems that, almost every few months now, there's a new wrinkle in how home price changes are reported and, coming as it does amid what millions of people think is a bottom for home prices, this one's a doozy.



Who is the Mid-to-High end Seller? Why Is This Important?



Now, think about those that are selling these mid-to-high priced houses. It is not the person who bought from 2005-2007 on a Pay Option ARM with 5% down because they can’t sell. It is the person who bought years ago that has enough equity to dump the price, sell, and have enough left over for the down payment on the house they plan to steal in the desert.



Even with the price dump, a person who bought in 1999 for $450k — who saw their house price rise to $1.5 million by 2007 and subsequently drop to $700k — realizes a price gain and so does CS. Even though CS reduces the weighting of pair sales the longer ago they occurred — when this is all you have selling — it carries most of the weight.



The bottom line is that Case-Shiller reports what sold, period. It is my opinion that the real estate market is so thin and bifurcated that what is selling today is not representative of the true real estate market.



It likely is not accurately representing properties purchased during the bubble years that are now worth a fraction of their purchase price because they are not transacting.



While I haven't read the details of how the index is calculated recently, one can immediately understand how the index values can be affected by how long the seller has owned the home after reading the following:This is apparently part of a private letter to clients. If anyone has a copy and would like to share some more details, please feel free to do so in the comments section or via email.Maybe, I'll drop Mark a line and ask him if he would like to share any more details about this because my interest is piqued. Then again, I haven't checked Calculated Risk yet today and Bill might already have an analysis on this subject posted.Anyway, this all makes a good deal of sense to me - aside from a few price ranges in a few areas of the country that may have hit bottom, there is much more work to do to get home prices back to more normal levels - and then there's the typical "overshoot".