With all the conflicting reports on housing prices and the direction of the market, you might ask: What's really going on out there?
If, as the National Association of Realtors reported last month, the median price of an existing home nationwide fell by 3.1 percent in 2006, does that mean that your house lost value as well?
Or do you focus instead on the more upbeat numbers released last Friday by the federal agency that tracks value shifts in the country's largest database of existing dwellings?
The Office of Federal Housing Enterprise Oversight (OFHEO) reported that home values rose by an average 5.9 percent last year, although the rate slowed to just 1.1 percent in the final three months of 2006. It also found some quarterly deflation in prices in California, parts of Florida, the Midwest and New England.
How could two highly respected gauges of real estate prices and values come up with such contradictory conclusions? How can the government report nearly 6 percent average appreciation on existing homes at the same time that the most comprehensive private-sector study of actual selling prices says they're down by more than 3 percent?
Could they both be right? The surprising answer is yes - but mainly because they are measuring different things. For example, the monthly median resale price surveys from the National Association of Realtors have an important limitation. The median price - the midpoint among all houses sold in a given period - is influenced by changes in the geographic composition of where houses are selling.
If high-cost markets are experiencing record sales - as occurred in California and the Mid-Atlantic states during the boom years - while low-cost markets are relatively quiet, the median will be pushed upward.
But if sales are down sharply in high-cost markets - California sales are down by about 30 percent for the year - while sales in populous, lower-price areas such as Texas are booming, that will increase the proportion of lower-cost sales in the mix, and drag the median price down. So a reported 3.1 percent decline - or a 3.1 percent increase, for that matter - may not be exactly what it appears to be.
Now take the OFHEO survey, the sunnier side of the street in the latest polls. Its database, large and impressive as it is, omits much of the country's highest-cost housing - dwellings with jumbo loans higher than the Fannie Mae-Freddie Mac limit; that limit is currently $417,000. That's an important omission because higher-priced homes tend to experience more volatile swings in values.
The OFHEO numbers also omit condominiums - a key segment in southern and western Florida and many large urban markets. Leaving out condos in areas where overbuilding and investor panic have depressed values significantly, documented by local realty statistics, inevitably produces rosier conclusions than reality. So OFHEO's report that Miami area home prices were up by a stunning 15.3 percent last year should be taken with a giant grain of salt.
Still another problem: OFHEO's data include refinancing, which frequently yields higher appraised values than purchases.
Despite these limitations, you can look at both surveys and come away with some useful conclusions:
If you own or are buying property in any of the dozens of metropolitan areas that boomed during 2002-2005, you can be fairly certain that property values are either giving back some of those fat gains or are flat for the time being. For example, in 21 of 26 major California markets in the latest OFHEO study, price deflation was under way in the final quarter of 2006.
The good news for most of the former high-flying areas - from Washington, D.C., to southwest Florida to Nevada to Arizona and California - is that the "give back" is relatively small. If your area saw an average doubling in values during the five most effervescent years of the boom, is it a big deal that prices are down by 1 percent to 4 percent from the peak? (No big deal unless you bought at the peak.)
If you live or are buying in an area where employment growth is strong and you never experienced the hyperinflation of the boom years, you probably are seeing excellent growth in home values. Seattle, Wash., and Portland, Ore., for example, have been growing new jobs at twice the national average, according to chief economist Frank Nothaft of Freddie Mac, and home values are up by double-digit rates.
The truly sobering pictures are in the industrial Midwest and portions of New England, where job and population growth has been flat or negative. Prices there aren't likely to get out of minus territory until employment turns around and people start moving in.