Case-Shiller v. OFHEO: A Tale Of Two Indices

We took a look at the recent release of the Case-Shiller Seattle index and the OFHEO index.

A quick explanation, the Case-Shiller index essentially measures all housing prices (subprime, conforming, and Jumbo) in 30 geographic markets in the U.S. Seattle is one of those markets. The OFHEO index (Office of Federal Housing Oversight), on the other hand, measures a wider geographic range, dividing the data between East North Central U.S., Middle Atlantic, etc, rather than specific cities, like Seattle. The other critical difference between the two indexes is that the OFHEO index measures only conforming loans from Fannie Mae and Freddie Mac.

The latter distinction is critical, because the segment of the real estate market that has been hardest hit is the part of the market that was articificially inflated with the use of the new derivative related loans: subprime, Alt-A, Jumbo.

The Case-Shiller index still looks grim for Seattle. One measure we look at is what we deem long term trend growth, with that growth rate for the Seattle market from February 1991 to March 2008 at 4.50%. See chart below.

The Case-Shiller index is currently 28.13% above the 4.5% trend.

The OFHEO index is in much better shape, currently 7.18% above trend. It appears that much, though not all, of the correction has taken place in the OFHEO Index in the last year, going from 28% over trend in April 2007 to 7% in March '08.

Conclusion: The conforming housing market ($417,000 or less) is much further along in the correction process than upper tier (reflected in the Case-Shiller index).

It's actually a very reasonable time to be a 1st time hombuyer, considering that 1st Time Homebuyers tend to need seller paid closing costs much more often, and sellers are more willing to pay selling concessions.