I haven’t seen a model yet that actually works, and they all miss the supply issue. Maybe the data is too hard to get.
What I’m looking for in a model is the inflection points. I’d like to know within 1 quarter if the market is turning. What is the leading indicator to show the market is going from high to low, or low to high? Once the market has turned, it keeps going in its new direction for 5 – 10 years, so the need for the model fades.
Let’s look at the inflection point [inflection point = time when prices reversed] for this current cycle. Prices peaked for condos in spring 2004, when inventory was 3,000. By June, inventory was 6,000, and by Sept 04, it was 12,000. The ripple effect took a little over one year to work to SFH, which peaked in August 05.
jg, could you check into this? Did prices fall as inventory rose? Did sales fall at that time also? If sales is a proxy for inventory, the summer of 04 should prove it.
My guess is that sales do not change enough at inflection points to signal the price reversal. I can think of situations where prices are pressured down to increased inventory, even though sales stay flat (such as rising foreclosures, unemployment). I know the inventory data is hard, if not impossible to get, and that’s why nobody is using it. However, my theory is that the model’s accuracy could be improved by using supply.
Another question about the model: what does it tell us that is better, or more timely, than the info we can get from asking SD Realtor or sdrealtor the following question: “What is your observation of price trends today?” These guys are going to be the first to know when prices change, even before my model or Campbell’s model gets a whiff of it. They will know within 2-3 weeks when the market has shifted, as they will see increased buyer interest, rising prices, fewer seller concessions. I wish we could backtest that question. Maybe we can: realtors, when did you first notice the market shifted?
Could the “ask the realtor” test be superior to any model?
