How much is my home worth? Twin Cities homeowners asking that question have a new source of news in a residential real estate index that for the first time separates traditional, normal home sales from foreclosure and other distressed sales.
The Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business released its first Minneapolis-St. Paul Residential Real Estate Index on Aug. 8. The monthly index uses nine data elements to measure the strength and health of the residential housing market in the 13-county metro market. The index was developed to provide a more detailed analysis of the Twin Cities residential real estate market than is available from the Standard and Poor’s Case-Shiller Home Price Index.
The widely used Case-Shiller index uses data from repeat sales of single-family homes. It does not distinguish, however between a traditional, normal market sale and a distressed sale. Traditional sales are those unaffected by foreclosure or the threat of foreclosure.
"The St. Thomas index is the first of its kind that we are aware of," said Herb Tousley, director of real estate programs at St. Thomas. "In recent years we knew that the price had dropped for traditional, undistressed home sales, but we also felt that traditional-sale prices had not dropped as sharply as the Case-Shiller Index would seem to indicate.
"We decided to create a more detailed index that differentiates between traditional sales and distressed sales. It also accounts for the proportion of distressed sales in the Twin Cities area."
St. Thomas’ monthly real estate report contains four composite index scores. In addition to an overall index based on all home sales in the Twin Cities, there are separate scores for traditional sales, foreclosure sales and short sales.
St. Thomas’ first report showed that if one owns a home or is selling a home that is not distressed, the value has not been impacted as much as less-detailed market data might indicate.
While the selling price of a home is a key component of the index, other factors contribute to the composite score: the number of closed sales, the proportion of distressed to traditional sales, days on the market, month’s supply, number of pending sales, number of new listings, number of homes for sale and the sale price as a percentage of the asking price.
To allow month-to-month comparisons of residential real estate trends in the Twin Cities, St. Thomas assigned the baseline value of 1,000 to January 2005, a month that was near the apex of the residential housing bubble.
"Reports that do not separate distressed and traditional sales have data that skews downward wherever a disproportionately large number of sales in a given time are distressed property sales," Tousley said.
"It varied from month to month, but between 35 and 60 percent of all transactions recorded in the last few years were recorded as distressed. This equates to seven to 12 times the normal number of distressed sales, and this disproportionality is what drove other indexes to exhibit low values."
Research for the St. Thomas index was conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university.
Tousley said each monthly St. Thomas index for the Twin Cities will take about two weeks to calculate. The residential sales data for July, for example, were analyzed and released by mid-August. That’s about a month sooner than the Case-Shiller data are available.
A chart showing monthly changes since January 2005 can be found at www.stthomas.edu/business/centers/shenehon/research. To subscribe to a free, monthly index, email a request to hwtousley1@stthomas.edu.
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