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March 26, 2009

Measuring changes in home prices

We take it for granted that we can track price changes. For example, we're very aware of whether gas prices are going up or down as we drive down the road. But what about something like home prices? How easy are they to track?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Of course, home prices have been the subject of a lot of attention over the last couple of years. One problem is that they are really much harder to track, and the big issue here is that all homes don't sell each year. Gas is sold every day, so you can go see what the price is. But every home is unique, and that unique home doesn't sell every year. And that can create big problems in tracking the price. Let me give you a real quick example. Let's say a home sells in 1990 for $200,000, and then in 2009 it sells for $350,000. If you look at that, you say, well, that house has gone up in value - gone up in price - the homeowner made money. But what if in 2007 - at the peak of the real estate boom - even though the home didn't sell, what if it's assessed value, what if an appraiser came in and said, well, if you sold this house this year, in 2007, actually it would sell for $400,000? Well that means since it sold for $350,000 in 2009, the house price has actually gone down in the last couple of years. That's not going to show up anywhere because the house didn't actually sell. So this is a big issue in tracking home prices, and I think it adds a lot of complexity to our figuring out exactly what's going on in the housing market."

Posted by Dave at March 26, 2009 08:00 AM