The story about the Minneapolis housing markets hitting a new low has been big news. This story is based on the S&P Case-Shiller Home Price Index released at the end of March, but what do these numbers really mean for the Minneapolis/St. Paul market? The recently released Case-Shiller data from January 2011 in Minneapolis shows a 3.4% decrease in home values from December ’10 to January ’11 and a 7.6% decrease in value from January ’10 to January ’11. These numbers alone do not tell the whole story. The full story revolves around how the market is influenced by changes in the types of homes currently being sold.
The first fact that is important to understand is how the Case-Shiller data is gathered. According to the Standard & Poor’s Case-Shiller Home Price Indices Fact Sheet:
“The S&P/Case-Shiller Home Price Indices began as a research project in the 1980’s when Karl E. Case and Robert J. Shiller began to construct a methodology to measure housing price movement. They developed the repeat sales pricing technique, still considered the most accurate way to measure this asset class. The methodology measures the movement in price of single-family homes in certain regions. This is done by collecting data on sale prices of specific single-family homes in the region. Each sale price is considered a data point. When a specific home is resold, months or years later, the new sale price is matched to the home’s first sale price. These two data points are called a “sale pair.” The difference in the sale pair is measured and recorded. All the sales pairs in a region are then aggregated into one index. “
There are two different markets that have developed reflecting two different types of housing sales in the Twin Cities market. (more…)