The use of the median is the greatest disservice that analysts like Gin, and the media, have perpetrated on the public. Home prices have been falling since 2004, and the median kept going up. Why, I asked, and I found the answer with Bob Casagrand, a real analyst! He explained that the mix of homes sold has changed: this year 10% of sales are high end, while last year it was only 8.5%. So the distribution of homes sold has shifted up, because the rich people ar not affected by rising interest rates and high homes prices as much as the first-time buyer. The first time buyer was squeezed out first.
According to Jim Klinge at http://www.bubbleinfo.com, North County homes are back at 2004 pricing, which is a 20% drop! Yet median is down only 1%. Furtermore, the median was at its peak in November, and has been falling ever since. If you want to use the median, track it month to month. We track GDP and CPI monthly, why does the median have to measured year over year?
Now you have 2 analytical realtors, Casagrand and Klinge, who explained WHY the median was still rising even though home prices were falling. Why couldn’t Gin figure it out???
A better mass price indicator is the Case-Shiller index, or the OFHEO index.
A better indicator than median is also months inventory and HAI. Klinge shows us that months inventory has really risen, to 70 months supply for $1 mil homes in Escondido. Months supply is considered by realtors to be an accurate gauge of pricing, and that’s what they use to advise their clients on pricing. Why doesn’t Gin know that?
Most ARM holders CANNOT refinance. Current ARM rates are about 50% higher than they were a few years ago, and people don’t have the 50% higher income to qualify. They can’t get a 30 year fixed because they don’t have 20% equity. Many refinanced and took HELOCs, further reducing their equity and increasing their debt loads. People got ARMs so they could afford a house, and they took on debt loads of 30% -45% of income, so they cannot qualify for a loan at a higher rate. I would be surprised if more than 1% of exotic loan borrowers qualify for a refinance. I read that 1/4 I/O loans are made to people who grossly misrepresented their income, according to last week’s banking survey. There will be $1 trillion of ARMs resetting nationwide by end 2008, and I figured that 40%, or $400 billion, is in CA. If we assume each ARM is for $500K, that is 800K CA homeowners who cannot refinance, cannot make the new payment, and will default.
So I predict that 800,000 CA homeowners will default on their mortgags over the next 18 months. Why doesn’t Gin analyze this, and tell us his projections for ARM defaults? Why doesn’t he talk about ARMs at all, about option ARMs, I/Os, or foreclosures rising rapidly?
