More Lies from Alan Gin

[lindismith]

Great thread!

But, yeah, oops, it’s Alan Nevin whose class I took.
Sorry for the mix-up.

[R3venge]

I have to say I am disappointed in people attacking Alan Gin because his numbers don’t match what you think will happen. You have to realize that Alan isn’t telling you what will happen but what could happen. Forecasts are only based on previous numbers, and the current situation hasn’t been seen before to this extent. Could he be wrong? Yes. Could he be right? Yes. What Alan Gin is reporting is the numbers as he has interpreted them.
I had the pleasure of working with Alan Gin in a business forecasting class and he is an amazing teacher, and if you look at all the numbers he has I have to agree with him on the plateau of prices over the next year or so overall. The decline in the RE market will not be overnight like a decline in the stock market. The effects of things like creative financing are hard to forecast because there isn’t the historical numbers there to draw on. People should also remember that Alan is looking at San Diego overall not just one area. I worked on a forecast for the urban core area and I forecasted a slight INCREASE in prices even though there would be a decrease in sales. Some areas are a lot riskier than others. Personally wouldn’t buy downtown.
I was glad to see Alan defend himself. Instead of attacking him take the time to look over his forecasts and you might agree with him.

[Anonymous]

Alan Gin is a poser who is totally out of touch the current real estate situation. The fact that he had never heard of the piggington site until yesterday demonstrates how out of touch he really is. Piggington was featured in the UT business section many months ago and is pretty well known. Alan Gin should stick to teaching business forecasting and stop providing useless commentary to the UT and other reporters, providing opinions that he is not qualified to make.

[powayseller]

I invite you to rebut the comments I made in my opening thread. Please take them on, one by one, and rebut them.

You and Alan have made vague comments about analyzing data, but have not rebutted my comments, nor given us data to support your conclusions.

Data, please…

[SD Realtor]

R3venge –

I did not view my post as attack on Alan. Furthermore if you read John’s and Powaysellers post I thought they are well thought out and are more of a presentation of our thoughts, not an attack.

[R3venge]

Ok I will try to rebut your claims.
First I don’t see why you think median home price is useless. I don’t know if you expect it to tell you everything or if you think it tells you nothing. As a starting point it is a useful economic indicator. Does it tell you how much to buy or sell a home for? No, but it is the easiest way to look at trends year over year. I know that in my forecasting class we split it up further by attached or unattached residences and then the median price becomes more useful for future predictions.
A 1% drop in price is not a trend. If the prices fall over a few months then you can say you have a trend. Right now it is hard to say the sky is falling after only a one drop.
I don’t know what you mean by the ARM problem. Many people will refinance because they will have equity in their homes and be fine. Right now there is only the PREDICTION that there could be an ARM problem. The people buying in the past year will have problems with ARMS if the market stays the same but that shouldn’t effect the overall market much.
Seeing a 10% drop in listing price doesn’t mean that prices are dropping. If this were the case you would see a 10% drop in median prices, not just 1%. When a house is listed the agent usually adds a few percent over comparable homes in the area. (Sorry not in real estate, don’t know specifics) what is happening is that agents have to list homes at the same price of comparable homes that have sold in the area, not higher.
You have to realize that Alan is talking about the entire SD area. Some areas are still hot, some are cold. I can see prices dropping quickly over the next couple years downtown but rising in HC. Will they balance each other out?
And about saying Alan is lying to the public. Lying is a harsh term to use. They asked his opinion and Alan gave it to them based on his data. I have seen his work and he wouldn’t doctor it.

[an]

This is why I think median price is pretty useless in term of the current situation. Like many have said, median price is a lagging indicator. Lets say you’re buying a house and you figured you can buy a 500k house. The house that was 500k last year is now 450k and the house 550k last year is 500k, would you buy a 450k house or would you still buy a 500k house? I’m pretty sure most will still buy that 500k house. That’s one of the reason why median doesn’t really tell you the whole story. Also, if you have less people buying in the low end compare to last year and more people buying in the high end, even if price drop 30-40% in real term, median price can still be going up.

If you take one data point of 1% drop, then I would say no, that’s not a trend. But if you take data from the last 10 years, showing y-o-y price going up at double digit and the last year, y-o-y price winding down to 0 and last month being the first negative y-o-y, I think that’s a pretty good trend right there. If you don’t think that’s the trend that it’s moving back to the historical moving average, then can you give me an example of an asset class where it move well beyond its moving average and does not return back to the moving average? Be it short sharp drop or long slow drop eroded by inflation.

[an]

-duplicate post-

[PerryChase]

Alan Gin is being circumspect. For him to come out and say that housing will drop significantly might cause panic. No one will fault him for being cautions on the down side. But if he becomes a party-pooper then people will be attacking him from every angle.

I feel that economic advice is like relationship advice. Never tell a person that his/her partner is no good. Even if you turn out to be right, you’ve lost a friend. Alan Gin needs his friends in the business community.

[lostkitty]

JohnHokkanen- Interesting stats… I’ve heard it repeated here on Piggington that the high end home market is still “hot”. Your numbers certainly suggest otherwise. I’ve been watching the same houses sitting for months and months in Rancho Santa Fe. Could it be that even we piggington readers have it wrong, and the high end is totally dead?

“Thanks for sharing that and participating in this forum. I invite you to consider my point of view…”

[powayseller]

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?

[powayseller]

Sales prices are down 10-20% or MORE! My friend who’s a realtor told me his buyer just got a house for $480K, that the seller had paid $540K, so the seller had to bring $60K to closing.

ARMs and foreclosures affect the entire market. We are selling 30K homes this year, in a city with 1.1 million homes. That means those 30K homes set the prices for the other 1 million.

Does Alan Gin ever talk with any realtors, buyers, sellers, to get actual data of what’s going on out in the field?

Another lie: he says the SD economy is resilient. Read my economy thread: 80% of our new jobs in the last 5 years are RE related and mortgage equity withdrawal dependent, and as housing cools, the SD economy will go into recession. Check Cheryl Mason’s report, the Labor Market info Excel file, which I have studied. Also he doesn’t talk about the 44K people per year leaving. I talk to people DAILY when I do my shopping, and have many stories of peole telling me that they know of at least 5-12 people who left SD because of the high cost of living.

[powayseller]

Alan Gin, I was hoping you would prove me wrong. Does your lack of response mean you are speechless?

[Anonymous]

The problem I see in this thread is all about forecasting. It’s very easy to advocate what your model tells you, much more difficult to question the underlying model itself. And no matter what, the excessive monetary liquidity and the surge in non-traditional financing in the past few years are significant and need to be considered. There is a good argument that the forecasts are not representing the market. This is very evident internally in the big mortgage/financial services companies who are taking a bath now because their forecasts are plain wrong, and they are having to restate earnings.

Perhaps we need to question the way forecasting is done. The large-grain aggregate data and financial models are actually tied to individual assests. The information is there for up-to the minute real time data on all assets. The vast majority of the industry just doesn’t have the vision and talent to consolidate the data sorces. Less time needs to be spent on averages, and more on control charts, teasing apart normal and extraordinary variation.

My background is in experimental psychology, so I am very aware of this human desire to put data into an “engine” that will magically give you an “answer.” It doesn’t seem to me unresonable to ask if the forecasting engines are wrong, thus making your answers irrelevant.

[lindismith]

Great post kristinejm.

The vast majority of the industry just doesn’t have the vision and talent to consolidate the data sources.

Is this because the industry itself is so fragmented? If I were a realtor/broker paying fees to belong to NAR, I’d expect comprehensive, realistic data, from which I could plan my own marketing accordingly.

Also, did you mean your last sentence to read the way it does? If so, can you be more clear? (Who is “your”?)

[Author]

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