August Housing Data

Prices

The size-adjusted median price dropped again for both property types:

Since peaking out in September 2005, this price indicator has dropped by 9.4% for single family homes and 12.6% for condos:

Now let’s have a look at the plain-vanilla median:

Hey, the median price was flat since last year! I guess there’s no housing downturn after all.

Here’s a view since the peak:

In short, the plain-vanilla median price continues to be nonsensical. And the media along with most of the populace continue to slavishly follow this figure as if it is the most meaningful number on earth.

Here’s a look at the bang-up job that the median-based price indicators have done since the subprime tightening began last year:

I think it’s fairly safe to say that given the ongoing mortgage tightening, the continued surge in foreclosure activity, and the declining sales volume, prices are probably doing worse now than they were as of the last Case-Shiller print in June. With that as an assumption, it looks like the size-adjusted median may be falling back into line. The vanilla median continues to be worse than useless.

Supply and Demand

This is the same story as in recent months. Inventory was fairly steady — actually down year over year:

…but volume was down a lot more:

Someone was asking about the above graph in the comments a while back. It represents the change in volume for each month using last August as a starting point — it does not represent the year-over-year change for each month. The latter would probably be more useful, but I tried it a while back and a couple folks were confused by it. I will go back to the old method for next month; in the meantime there are some good graphs on this forum thread.

Overall, the months-of-inventory figure was 20% higher than it was in August 2006. So all things being equal, we could expect weaker prices in the months ahead than we got in the months after August 2006.

But are all things equal? Oh my, no. In between August 2006 and August 2007, we had ourselves a little credit crunch in the subprime space. And then we had another credit crunch for basically all non-conforming loans. And then there’s this:

Conclusion

And yet, when I read the user comments after today’s housing data report in the Union-Tribune I was struck by the confident attitude of many of the commenters. Newly confident, as far as I could tell, because I haven’t seen that kind of chest-thumping in a while. Perhaps the permabulls were initially caught off guard by the downturn, after years of insisting that home prices could never stop rising, let alone decline. And maybe now they’ve regained their footing and are clinging to the completely misleading median data to start stridently justifying their worldview again.

Or maybe I happened across a particularly clueless group of commenters. I don’t know. Either way, people are by and large still laser focused on precisely the wrong thing, using prices (that most lagging of indicators) to justify their forecasts, using a completely inaccurate price indicator to boot, and applying the "it’s different here" argument to certain areas of San Diego without seeming to realize that they applied that very same argument, erroneously, to San Diego as a whole just a couple years ago.

This seems to me like a particularly bad time to experience a resurgence in bullish confidence. Phase 2 of the credit crunch — the phase that will affect all areas of the market, and not just the cheap ones — just got started in August. It hasn’t even shown up yet in the data presented above, because that data primarily represents deals that were signed in pre-crunch July.

Just to put some numbers on this idea: per the chart above, August closed sales (deals that were signed in July and closed in August, for the most part) were down 20% from a year ago. August pending sales (those that were signed in August and will close in September) were down over 30% from a year ago. So next month is quite likely going to be uglier than this month, and the ugliness will become greater still when the REOs resulting from that almost-vertical rise in the blue Notices of Default line in the above chart start hitting the market. I don’t think the UT peanut gallery will be feeling so emboldened a few months down the road.