The Federal Housing Finance Agency is trying to take the stress out of home prices.
Specifically, it's trying to come up with ways to track home prices without including short sales and REO transactions. REO stands for “real estate owned,” which is housing jargon for foreclosure sales, or “houses repossessed by banks and then sold.”
Why? Because “distress-free measures might be less noisy,” meaning statistically purer, that is, with less unexplained variation, “and might provide more relevant measures of changes in house prices.”
The aim is continued fine-tuning of the FHFA's house price indexes, which are broad-based, which makes them the most reliable in my book.
The more widely watched and trumpeted Standard & Poor's/Case-Shiller index, for all the national news — and hand wringing or Champagne popping, as the data indicates — actually tracks home price changes in just 10 metropolitan areas. Another S&P/Case-Shiller index looks at 20 metro areas, but it's still limited data. Neither index includes Oklahoma City.
Other companies that track house prices for their own purposes — and dutifully send out news releases — have their own flaws. All have flaws, of course.
The FHFA, which regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, tracks average house price changes in repeat sales or refinancings on the same single-family residences. Its purchase-only index is based on more than 6 million repeat sales transactions and its all-transactions index looks at more than 46 million repeat transactions and are based on data from Fannie Mae and Freddie Mac collected for almost 40 years.
Removing short sales and bank-owned sales from the data isn't as easy as rejiggering an Excel program. Sellers aren't identified in the Fannie Mae and Freddie Mac databases the FHFA uses, so bank sales are invisible. Short sales can't always be spotted because mortgage delinquency status, or the financial shape of the seller, isn't always known, according to FHFA.
But bless their bean-counting hearts, the data geeks at FHFA are giving it their best shot.
In the most recent quarterly index report, the agency said it has located several databases “including a licensed data set of foreclosure-related filings” from county offices to identify stressed sales in the 12 metro areas with the greatest peak-to-current price declines — the most distressed sales, that is. They are Atlanta, Chicago, Los Angeles, Miami, Fla., Oakland, Calif., Phoenix, Riverside, Calif., San Diego, San Francisco, Santa Ana, Calif., Tampa, Fla., and Warren-Troy-Farmington Hills, Mich.
Not Oklahoma City, for obvious reasons: Distressed home sales have been happening here — and in neighborhoods with more than one or two short sales or bank-owned sales, comps have come back with heartburn for some sellers. But on the national scale, the bad news here is not statistically significant.
So, let's keep that in mind. And when the FHFA gets the bugs worked out of its distress-free index, let's not read or hear about goings-on in Atlanta, Chicago, Los Angeles, Phoenix and so on and think it means anything for us. Whether they make you want to wring your hands or pop open Champagne, home prices are local, local, local for each location, location, location.