The Valuation Index that I Trust

Back in September, I spoke to Robert Dorsey of FNC about how this index was created and what he can do with it. (Nice guy. He even speaks “non-math” well.)
Yesterday, I wrote about S&P Case-Shiller and their repeat sale methodology. It is a good index, but FNC has something Case and Shiller couldn’t get in the 1980s – more data. FNC gets its property information from loan origination databases – in other words, right from the mortgage property appraisals and BP0s (Broker Price Opinions.) This provides a more detailed picture of the size and condition of properties being sold than public records can. It gives information that accounts for depreciation or improvement of the property between sales. It is simply more and better data. FNC collects that, then, blends it with public records.
They worked at the database for ten years to build the index based on all the physical characteristics typical for housing. (Those include physical characteristics, like size and condition. It also can factor in school districts, distance for a specific site, zip code, waterfront properties, and more.) This allows for a good look at neighborhoods and what happens to housing prices there.
Because the index is data-rich, it can answer fairly specific questions. For example, FNC was able to track the changes in real estate values as a result of the Gulf of Mexico oil spill.
The details of their methodology was submitted for the reviewed journal, Journal of Housing Economics.
Who benefits from info like this? It’s aimed at investors and at lenders, but it has caught my attention. What do you think?

When I asked Mr. Dorsey about Boston, he said the gains were modest. Look for yourself. (Choose any Metropolitan Statistical Area – MSA -- you want from the bar.) He agreed that there is a lot of variation in the eastern Massachusetts market. “One area is very specific and another house a short distance away is in another world.” The same is true in many places, including where the company is based, in Oxford, MS.
FNC can customize the data to see what the market looks like based on any of the characteristics that they are tracking. So, market information for a neighborhood, or a market segment (like high end) or houses that are within a mile of a disaster (like the Gulf Coast) can be studied.


Friday, I will walk you through how I look at FNC. The new numbers are out. They show an interesting trend for the Greater Boston area. Before that, I want to walk you through the valuation system that most Realtors® use to explain the market.