In an attempt to get a better understanding of what's happening in the Twin Cities housing market, Herb Tousley at the University of St. Thomas has created a monthly housing market index that he hopes will offset some of the "issues" he sees with the closely watched Case- Shiller report.

His new Residential Real Estate Market Index is based on recent data from the Regional Multiple Listing Service, including sale price, number of sales, proportion of distressed sales to traditional sales, market time, months' supply, pending sales and new listings. Those numbers and a few others are used to create a numerical index, which has a baseline value of 1,000 for January 2005, the apex of the residential housing bubble. Tousley is the director of the Master of Science in Real Estate Program and the Shenehon Center for Real Estate in the Opus College of Business.

The Case-Shiller report is based on an index of 20 cities throughout the country, which is computed by calculating the percent change between prices of matched sales pairs of individual properties. Tousley's complaint about the methodology is that those sales pairs can include foreclosure and short-sale transactions. So in a market in which nearly 50 percent of all sales are distressed sales, you're going to see unusually large declines in sale prices. Tousley contends that while distressed sales do impact the market, allowing them to be included in the sale pairs unfairly skews the number because the seller -- usually a bank -- isn't a typical seller. He also said that the data is about 60 days behind the market.

In the Case-Shiller report of late the Twin Cities metro area is consistently called out as the city with the biggest price declines. Tousley said that's only the case because of the high percentage of foreclosures hitting the market, but not because the foreclosure rate is higher than any other market. He attributes the high ratio to a simple matter of timing. "It's a function of how lenders process these things and put them on the market," he said.

Because so many of those sale pairs show as foreclosures, Tousley said, the declines appear much worse than in reality.

Tousley's report tracks prices for traditional sales and distressed sales separately in an attempt to get a sense of what the market would be like if so many lenders weren't wholesaling their listings. The result, he said, is that prices aren't down as much as they appear in the Case-Shiller report.

The inaugural report is for May and June (the report will be released monthly) the month-to-month composite index increased in May for the first time in 11 month, but was down 1.85 percent compared to a year ago. It increased from May to June, as well, a total of 4.25 percent. It hit a low point of 727 in March, but has since rebounded to 784 in June.

"As a normal homeowner your house value has gone down, but not nearly as much as these distressed sales," he said. "You're in better shape than you thought you were."

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Jim Buchta • 612-673-7376