Pros & Cons of Housing Indicators

Pros & Cons of Housing IndicatorsThe market value of different products always depends on market condition. The faltering financial circumstance is responsible, in most of the cases, for the faltering product valuation and estimation. There are certain factors for a particular product that control, more than other factors, the product valuation. These factors are generally known as market indicators. Several financial institutions and experts summarize on these indicators and explain their influence periodically. In real estate industry, these are known as housing indicators. Sometimes, these become useful, sometimes they simply confuse.

Some indicators’ reports like House Price Index of Office of Federal Housing Enterprise Oversight (OFHEO) derive information from Freddie Mac and Fannie Mae. Their report is based on mortgage closings of the same houses periodically. This is a kind one one-to-one comparison for home purchase. The comparison mainly based on sales price or appraisal figures.

The pro of this method is undoubtedly the type comparison. However, the con is that there is no option to estimate property improvements. A property improvement can boost home price beyond apprehension. Also, in various cases the high priced properties are quite absent from this report, as well as purchases where major secondary market participants do not operate.

The housing indicators have different advantages. The indicators are very updated and timely. There are at least two reports published in each month. Mainly US Census Bureau and National Association of Realtors do this in USA. There are various disadvantages of this kind of housing indicators also. To publish monthly updates, the experts need to summarize the whole month’s features in a very short time. This opens a chance for being easily influenced by the locality of the place. It does not give a chance for general comment.

However, few other reports, to avoid this drawback, report only on particular house sales. OFHEO report is one like that. But this also is defected, as it does not include refinancing in the evaluation of a same house purchase for some times. This report also leans to miss trends. This happens mainly because of the appraisal values upon which refinances are based incline to stay behind real prices. OFHEO and CMHPI get their information from a particular surveyor. On their process they omit a large portion of information, which their source does not provide.

There are other indicators also like Standard & Poors/Case-Shiller National Home Price Index. They repeat sale comparisons. However, their advantage is that, they cover the higher priced loans, private financed purchases, and government insured loans. These sections are most of the time omitted by other indicators. On the other hand, Case-Shiller’s report is limited geographically. They procure limited home sales data. Upon this they made their report, which is bound to omit many areas, even several states. This report provides trends with an up-end housing markets. This diverges from general financing. It also provides more importance to high priced regions.

These various types of indicators with all their drawbacks and advantages may confuse a buyer. But also these various information sources and various opinions ultimately help people to decide more wisely.


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