jg, your graph proves the point that the median is a lagging indicator. The median is down 7% from its peak in Nov 05, but we’ve got houses down 20%. The Case-Shiller index is down only .98% from Sept 05 to Sept 06. Anyone looking at the median mistakenly thinks their homes is worth 5% less today. The median is so useless, that Bob Casagrand, a realtor who spends 3 days every month analyzing the MLS data in Excel, stopped posting it in his monthly report. Because the truth on the ground is so far off from the number.
Eventually, the median will show the decline. When the market turns around, the low end will pick up first, skewing the median down. So everyone tracking the median will think the market is still dropping, when in reality it will be on a rebound.
There is no way in the world you can know what is going on in housing unless you are on the ground, hitting the pavement, and talking with realtors. In my case, I talk with realtors as much as I can. We are very fortunate to have the wisdom of sdrealtor and SD Realtor and bloggers like Jim Klinge, Bob Casagrand’s newsletter, and my various realtor friends. You simply cannot understand housing by just looking at data, and I become more convinced of that as time goes on.
Employment and recession are lagging indicators of the economy, so it’s not news that a number can be a lagging indicator.
I just don’t understand exactly why the numbers lag by 18-24 months. Some of it is because as prices drop, people buy more expensive homes. First time buyers are priced out. Both reasons mean a greater percentage of the sales are higher end homes, but even those homes are worth less today than last year. Case-Shiller could be affected by all those kitchen remodels. Perhaps remodeled homes sold while unremodeled homes did not, so there is no outlier to throw out. 4 bedroom homes sell while 3 bedroom homes just sit…so many variables.
kristinejm – Steve is talking about incremental cost. There’s a baseline cost for the land, and each additional square foot costs $50 – $70 (or more).
