S.F. Home Prices Drop as Distressed Sales Rise

Inquiring minds are reading SFGate.com’s “S.F. Home Prices Drop… ” and seeing an interesting analysis of new data:

Short sales increased by 30 percent nationwide over the past year, destabilizing the housing-price indexes, said Oliver Chang, a U.S. housing strategist at Morgan Stanley who co-wrote the report. Proceeds from short sales are 15 to 40 percent more than foreclosed homes, driving up S&P/Case-Shiller indexes even when values of non-distressed homes are falling, Chang said.

“There’s a price premium you can get from a short sale,” Chang said. “That makes it look like prices are going up when they’re not.”

San Francisco home prices rose 1.8 percent in May from April, according to the S&P/Case-Shiller index of property values, which measures all sales. San Francisco’s gain reflects both a decrease in the number of distressed sales as a share of transactions and an increase of short sales among distressed sales, Morgan Stanley said. San Francisco prices have gained 21 percent since reaching a low in March 2009, according to the Case-Shiller index.

Case-Shiller can be wrong. It is always important to remember that any analysis system is weak (and can be wrong) in certain instances. People are finding this to be true in the BLS statistics where they are trying to analyze retail data in a contracting market by year-over-year same-store-sales. This only works in an expanding economy. In a declining market this system doesn’t take into account the closed stores. Even Babe Ruth struck out at times.


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