As more companies launch their own home price metrics, the much-watched Case-Shiller indices have readjusted their methodology to adapt—and revealed a different picture of home prices in the last few months than originally reported.
Beginning with the release of the June report last month, the monthly Case-Shiller reports now include an expanded national series going beyond the previously covered 20 markets. Previously, the national series was only released every quarter.
While the new index comes as a "welcome improvement," it also throws a wrench into what analysts previously knew about home prices during and after the crash, says Paul Diggle, property economist for Capital Economics.
Looking at the new measure, Diggle notes house prices fell by a cumulative 0.4 percent over the second quarter. While that marks a "dramatic reversal" from the trends of the previous two years, it fits with the recorded 0.5 percent fall in the 20-city measure since April, he says.
The historical picture, on the other hand, is a different story, thanks to changes in the treatment of foreclosure sales.
According to Diggle, the new index shows prices fell 26 percent during the crash compared to 34 percent, as previously thought. As a result, the rebound that followed has amounted to 20 percent as opposed to 23 percent.
"The historical revisions suggest that the housing bust was not as deep as thought and the subsequent recovery has not been as strong," Diggle said in a note to clients. "But if anything the new index strengthens our view that housing is approaching fair value and that house price inflation will continue to slow."
According to Diggle, the new series points to 8.8 percent undervaluation compared to incomes in the second quarter, slightly less than the 10.8 percent recorded on the previous quarterly index—"meaning that at the margins the new series adds to our view that housing is approaching fair value.
"That's one reason why we expect the slowdown in house price inflation to be sustained," he concluded.