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Are the big home price increases for real?

Posted by Scott Van Voorhis July 31, 2013 10:36 AM

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Home prices jumped a dizzying 12.2 percent in the nation's top metro markets in May, according to the latest Case-Shiller report.

For the majority who are not real estate junkies, the Case-Shiller home price index is the industry's bible, co-founded by none other than local guy Karl Case, now professor emeritus of economics at Wellesley College.

Greater Boston prices rose by a much more modest 1.8 percent in May over April, though we are up a fairly substantial 7.5 percent compared to a year ago, according to Case-Shiller, which focuses solely on resales of existing homes.

However, online real estate portal and research firm Zillow is taking aim at the Case-Shiller numbers, arguing the price increases are somewhat artificial since they include re-sales of foreclosures.

Actually, "not very believable" are the words Zillow uses to describe the latest Case-Sill
Zillow is predicting a slowdown in price increases, including a mere 1.2 percent increase in the Boston area over the next year, arguing higher interest rates will cool the market down.

Gutsy move by Zillow, but I am not buying their numbers.

Given what we are seeing right now in terms of steep price increases, which are duly being reported not just by Case-Shiller, but by The Warren Group and other reputable sources, I'd have to say  that if there is anything that's not particularly believable, it is Zillow's projections.

And, of course, it's not just the experts who are reporting higher prices.

All one has to do is to talk to the innumerable buyers battling to land a house or condo in Greater Boston and other hot real estate markets across the country to know prices are rising, and frankly rising much too fast.

Anyway, here Zillow's critique of the latest Case-Shiller numbers.

Read it and then feel free to fire away on the comment board. Not that I have to encourage anyone in that regard.

"Three straight months of national home value appreciation above 10 percent is not normal, not sustainable and, frankly, not very believable. As the overall housing market continues to improve, the impact of foreclosure re-sales on the Case-Shiller indices continues to be pronounced, as homes previously sold under duress trade again under more normal circumstances, leading to inflated and misleading markups in price," said Zillow Senior Economist Svenja Gudell. ?It?s increasingly critical that the average American homeowner not read numbers like today?s Case-Shiller results and assume their homes must also have appreciated at these levels over the past year, or will continue to appreciate at these levels going forward. In reality, typical home values have appreciated at roughly half this pace for the past several months, which is still very robust. Looking ahead, a combination of rising mortgage interest rates, flagging investor demand and more inventory entering the market will all help to moderate the pace of home value appreciation and stabilize the market."

This blog is not written or edited by or the Boston Globe.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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