Home prices started the year on an upswing.

According to the Federal Home Finance Agency’s Home Price Index, home prices rose by a seasonally-adjusted 0.3 percent between January and February 2012. The index is up 0.4% over the past year, offering a counter-story to the Case-Shiller Index’s assertion that home values are sinking.

Last week, Standard & Poor’s Case-Shiller Index said home values had dropped more than 3 percent in the prior 12 months.

As a home buyer or sellers in Thurston County, Washington , data showing “rising home values” or “falling home values” may be of interest to you, but we can’t forget that most home valuation trackers — including both the government’s Home Price Index and the private sector Case-Shiller Index — have a severe, built-in flaw.

Both used “aged” data. Today, the calendar reads May. Yet, we’re still discussing February’s housing data.

Data that is two-plus months old is of little value to everyday buyers and sellers wanting to know the “right now” of housing. And, even then, characterizing the data as “two-plus months old” may be a stretch. This is because the home values used in the Home Price index and the Case-Shiller Index are collected from actual transactions, but at the time of closing.

Considering that most purchases require 45-60 days to close, we can know that when we look at the Home Price Index and Case-Shiller Index reports for February, what we’re really seeing is a snapshot of the housing market as it existed two-plus month plus 60 days ago.

Data that’s 5 months old is of little relevance to today’s buyers and sellers. Today’s market is driven by today’s economics.

The Home Price Index is a useful gauge for economists and law-makers. It highlights long-term trends in housing which can be helpful in allocating resources to a particular project or policy. For home buyers and seller throughout Washington State , though, it’s much less useful. Real-time data is what matters to you.

For that, talk to a real estate professional in Thurston County, Washington. For all your Thurston County, Washington mortgage needs contact William Tuning at CU Mortgage Division located in Olympia, WA at (360) 539-4687 for a free pre-approval or free consultation on your home loan options or just candid conversation.

The government is confirming what the private sector has already shown —  home values are on the rise.

The Federal Home Finance Agency’s Home Price Index shows home values rose 0.8% in July.

July marks the fourth straight month that home values climbed and the FHFA’s Home Price Index is the latest in a series of “rising home values” reports — an encouraging trend for buyers and sellers in Olympia and nationwide.

Last week, the S&P Case-Shiller Index showed home value up nearly 1 percent in July. CoreLogic reached a similar conclusion.

Nationwide, values are back to their highest levels since November 2010. Clearly, the housing market in Washington State is moving in the right direction. Or is it?

Although the data from the government and from private firms such as CoreLogic is encouraging, it’s also flawed. As such, we have to be careful about the conclusions we draw from the data.

The flaws of Home Price Index are glaring :

1. Only homes backed by Fannie Mae or Freddie Mac are included in the index. In today’s market, because of the FHA’s popularity, that leaves 1 of 3 homes “uncounted”.
2. Only home resales are counted. New home sales are omitted entirely.
3. The data comes with a 60-day delay. The October market is different from July’s.

Despite these shortcomings, however, the Home Price Index remains relevant. It’s among the most through home valuation models and it’s often used by economists and policy-makers.

When the Home Price Index is rising, Wall Street and Capitol Hill take notice. For residents of “Main Street”, however, the data may not be as important. To get local, up-to-date market statistics in Pierce County, for example , talk with a professional real estate agent.

Since peaking in April 2007, the FHFA’s Home Price Index is off 17.6 percent.

According to the Federal Home Finance Agency’s Home Price Index, home prices rose a seasonally-adjusted 0.4 percent from April to May.

It’s the HPI’s second straight increase, and puts the monthly index at its highest point since January 2011.

As a home seller in Tumwater , you may appreciate news such as “rising home prices”, but it’s important to remember that the Home Price Index has a several built-in flaws — the biggest of which its age.

Today, the calendar nearly reads August, yet, we’re still discussing May’s housing data. A 2-month delay does little to help buyers and sellers wanting to know the “right now” of housing.

Unfortunately, the Home Price Index data is even more aged than that.

Because the FHFA’s Home Price Index measures home prices as recorded at closing, the actual sales prices included in the index are from real estate contracts written 30-60 days prior.

In other words, when we look at the Home Price Index report for May, what we’re really seeing is a snapshot of the housing market as it existed in March. March’s housing market has little to do with the forces driving home prices today.

Today’s real estate market is driven by today’s economics.

The Home Price Index is a useful gauge for economists and law-makers; it shows long-term national trends in the housing market which can be used to allocate resources to a project, or to form new policy. For home buyers across the state of Washington State , though, it’s less helpful.

For today’s real estate buyers and sellers, there’s no substitute for real-time data. For that, talk to a real estate professional.

Home values dropped for the sixth straight month in March 2011, according to the Federal Home Finance Agency’s Home Price Index. The Home Price Index is a government-sponsored home value tracker.

The HPI report is the latest in a string of “falling home values” stories — a trend that’s troubling home sellers across Tumwater and nationwide.

However, although the Home Price Index says home values are falling, that doesn’t necessarily mean that they are. Like most statistics in the housing sector, the Home Price Index is plagued by poor methodologies and a lack of timeliness.

In short, the Home Price Index is flawed. In three ways.

The first big flaw in the Home Price Index is that it only measures the values of homes with mortgages backed by Fannie Mae or Freddie Mac. Homes financed via FHA, or via other means are specifically excluded from the calculation. For today’s purchase market, that leaves more than 1 in 4 homes “uncounted” — a big percentage of the market.

Second, the Home Price Index determines home values by measuring price change from sale to subsequent sale. This eliminates new homes — a major market segment.

And, lastly, the Home Price Index reports on a 60-day delay; we’re only now seeing data from March. This two-month lag renders the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for market insight, the HPI can’t give it — it’s out-dated and out of season.

Despite its shortcomings, though, we can’t ignore the Home Price Index completely. It’s among the most thorough home valuation models available, and it’s used in public policy discussions. When the HPI says prices are down, Wall Street and Capitol Hill take notice, and that trickles down to everyday life on Main Street.

Since peaking in April 2007, the Home Price Index is off 19.1 percent.

In an echo of February’s Case-Shiller Index report, the government’s own home price-tracker — the Home Price Index — showed home values slipping between January and February 2011.

The Federal Home Finance Agency data had home values down 1.6 percent nationwide in February, on average, marking the fourth straight month in which prices fell.

Furthermore, all 9 regions posted losses from the month prior:

• Mountain Region : -3.7% from January
• East South Central : -0.6% from January
• South Atlantic : -0.9% from January
• New England : -2.0% from January

Before you draw conclusions, however, note that the data at which we’re looking has several major flaws to it.

First, it’s old. We’re now in the first week of May and the FHFA’s most recent release only covers through February, a time period ending roughly 60 days ago. That’s a long delay and today’s purchase market in Olympia looks much different from the one of February.

Just ask a real estate agent and they’ll tell you — purchase activity is rising.

Second, the FHFA Home Price Index reports on home value changes between consecutive Fannie Mae or Freddie Mac-securitized transactions only. This might be creating an overweight of “distressed properties” in the index which, in turn, drags down valuations.

Distressed homes account for 40% of all home resales and typically sell at 20 percent discounts.

And, lastly, although the Home Price Index is a national report, real estate as a market is decidedly not national. To the contrary, it’s extremely local. As an individual, you don’t buy, sell or own homes in all 50 states. You buy them in a specific state, and a specific neighborhood ; in places like Pierce County.

The national data is useless to you in that respect.

We can’t discount the Home Price Index data entirely, but should remember that it paints a clearer picture of where housing has been versus where housing is going. As a home buyer or homeowner, it’s the future of home values that matters more.

Home values were reported unchanged in November 2010, on average, according to the Federal Home Finance Agency’s Home Price Index. 

We say “on average” because the government’s Home Price Index is a data composite for the country. The index doesn’t measure citywide changes in places like Lacey , nor does it get granular down to the neighborhood level to measure places like Pierce County.

Instead, the Home Price Index groups state data in 9 regions with each regions having as few as 4 states in it, and as many as 8.

Not surprisingly, each of the regions posted different price change figures for the period of October-to-November 2010.

A sampling includes:

• Values in the Pacific region rose +1.2%
• Values in the New England region rose +0.3%
• Values in the Mountain region fell -1.9%

The complete regional list is available at the FHFA website.

That said, none of these numbers are particularly helpful to today’s home buyers and sellers and that’s because everyday people don’t buy and sell homes on the Regional Level. We do it locally and the government’s Home Price Index can’t capture data at that level.

It’s a similar reason to why the Case-Shiller Index is irrelevant to buyers and sellers.

November’s Case-Shiller Index showed home values down 1 percent in November, but that conclusion is a composite of just 20 cities nationwide — and they’re not even the 20 largest cities. Philadelphia, Houston and San Jose are conspicuously absent from the Case-Shiller list.

So why are reports like the Home Price and the Case-Shiller Index even published at all? Because, as national indicators, they help governments make policy, businesses make decisions, and banks make guidelines. Entities like that are national and require data that describe the economy as a whole. Home buyers and sellers, by contrast, need it locally.

Since peaking in April 2007, the Home Price Index is off 14.9 percent.

Consistent with the most recent Case-Shiller Index, the government’s Home Price Index said home prices rose between July and August. 

The Federal Home Finance Agency’s data showed values up 0.4 percent nationwide, on average. Region-by-region, however, the results were scattered. Coastal states tended to perform poorly. Plains states tended to perform well.

A brief look at the regional disparity:

• West South Central : +1.5%
• East North Central : +1.2%
• Pacific : -0.2%
• South Atlantic : -0.2%

Breakdowns like this are important because they highlight the fundamental problem with national real estate data and that’s that home buyers in your area don’t buy real estate in a national market, or even a regional one.

Buyers buy local.

When we look at national figures like the Home Price Index, it’s important to remember that real estate is a collection of tiny markets which, when lumped together, form small markets which, in turn, lump together into larger markets and so forth.

To illustrate this point, a deeper look at August’s Home Price Index data shows that, within the aforementioned Pacific Region, in which home values fell 0.2%, the state of California posted a 2.9% increase. You can be sure that within the state of California, there are cities that performed better than the 2.9 percent, and within those cities, there are neighborhoods that did the same.

Real estate is most definitely local.

That said, we can’t discount the national report entirely. Broader housing statistics like the Home Price Index reflect on the economy and are often used to help shape policy in the nation’s capital. When you need to know what’s happening in your hometown, though, your best source of data is a knowledgeable real estate professional.

The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.

According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.

So, as a home buyer and/or homeowner in Olympia , by which valuation model should you make your bets?  Perhaps neither. 

This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets. 

The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population. 

That’s hardly representative of the housing stock overall.

By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties.  The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing. 

The HPI ignores homes backed by “jumbo” loans, too.

Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood like Thurston County. A real estate agent in the area does, however.

The best way to get a pulse for what’s happening in markets right now is to talk to somebody with good data.

According the Federal Home Finance Agency’s Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide.  This, after a half-percent monthly increase in prices in May, on average.

Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May’s half-point increase is an average, and not specific to a particular area.

In contrast to “national markets”, the real estate markets in which you and I live are decidedly local.  It’s a major difference and the distinction renders the Home Price Index somewhat less important. 

After all, the HPI doesn’t account for housing activity in individual neighborhoods like King County , nor does it track value across cities like Olympia. Instead, it summarizes data in giant chunks of geography.

A quick look at the HPI regional data proves the point. Of the HPI’s 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average.  The others varied by as much 1.3 percent.

As a sample:

• Mountain Region : + 1.7 percent
• New England : + 0.2 percent
• South Atlantic : +1.0 percent

And this is on a regional basis. The HPI’s applicability to state, city and neighborhood markets is even less appropriate.

Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood.  That type of granularity can’t be tracked in a report like the Home Price Index.

The best place to get that data is from a local real estate agent that knows the market well.

Last week, the Case-Shiller Index reported home values up 0.8 percent across 20 tracked markets. The public-sector Federal Housing Finance Agency has reached a similar conclusion.

Reporting on a two-month lag, the government’s Home Price Index shows home values up 0.8 percent in April, buoyed by the expiring federal home buyer tax credit and low mortgage rates.  It’s a positive signal for a recovering housing market — in Olympia and everywhere else.

But just because the Home Price Index says home values are rising, that doesn’t mean they are. The Home Price Index methodology is flawed on multiple fronts.

First, the Home Price Index reports on a 60-day delay. This two-month lag turns the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for direction, HPI won’t give it to you — you’ll have to get that analysis from your real estate agent.

Second, HPI only accounts for home values in which the home’s attached mortgage is backed by Fannie Mae or Freddie Mac.  As the FHA market share grows, fewer homes get included in the HPI sample set, and HPI values may be skewed high or low.

And, third, HPI doesn’t account for new home sales — only repeat ones.  This, too, eliminates a major segment of the market.

All of that said, though, the Home Price Index remains important to housing.  It’s still the most comprehensive home valuation model in print and it’s been giving strong readings since the start of year.  You can’t ignore that on any level.

It’s July and you may have missed the “rock bottom” Thurston County home prices from earlier in the year, but homes are still relatively inexpensive. Couple that with all-time low mortgage rates and home affordability looks excellent. Consider making an offer while the terms are right.