Posted Tuesday, December 30, 2008 --- 4:45 p.m.

A closely watched index shows home prices dropped by the sharpest annual rate on record in October.

The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday fell by a record 18% from October last year, the largest drop since its inception in 2000.

None of the 20 cities saw annual price gains in October -- for the seventh consecutive month.

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David Stark with the Wisconsin Realtors Association says the Case-Shiller index is misleading in regard to Wisconsin home sales. The Case Shiller index only measures price changes in 20 cities around the country. None of those cities are in Wisconsin.

From David:

"The FHFA Index, published by the government entity that regulates Fannie Mae and Freddie Mac uses roughly the same "repeat sale" methodology as Case-Shiller, but covers all 292 MSA's in the country, including Madison. It is published quarterly.

The most recent report, covering sales through September 30 2008, shows Madison with a decline of 1.4% in the preceding 12 months, nothing like the 18% reported by Case-Shiller. This corresponds almost perfectly with the change in our measured median price over the same period. Also, Wisconsin as a whole registered a 1.2% decline, and the nation as a whole, taking all markets into account and not just 20, showed a decline of 6% in the 12 months ended 9/30/08.

In the previous 5 years, Madison home prices have risen by an average of about 4.5% per year, which is very much in line with the historic average.

The 20 markets used by Case-Shiller greatly over-sample the markets that are in the most difficulty nation wide. 8 of the 20 are in the bottom 20% of the 292 markets measured by FHFA. 11 of the 20 are in the bottom 30%. 17 of the 20 are in the bottom 50%.

7 of the 20 are in the 4 states where virtually all the "bubble" problems have been found: California, Arizona, Nevada, and Florida. Prices in those states are falling at a rate of 15-20% per year as measured by FHFA.

Overall, Madison housing prices have been very stable, and we expect them to continue to be fairly stable into the future. Since we never experienced the huge increases in prices that some markets experienced, we should not expect to experience much decline either. Interest rates are currently at historic lows, and there is still a fairly large inventory of properties for buyers to choose from. Buyers who buy today and hold their properties for at least 3-5 years, which we always recommend, will find this to be a great buying opportunity. All real estate markets are local, and national statistics such as Case-Shiller have no relevance whatsoever to local conditions. As I've said before, it's like trying to make sense of a national weather forecast... there is no such thing. We would strongly encourage buyers and sellers to contact a local Realtor to find out how to take advantage of the current market conditions."