December 6, 2006 at 5:18 AM #8013powaysellerParticipant
This NYT article tries to come to grips with what we’ve been discussing for some time: the housing statistics do not reflect what is really happening with prices.
The journalist notes that Naples, FL home prices are up 20% according to the OFHEO index, but are down 25% according to the recent auctions and sales. He tries to come up with an explanation, but I’m not sure it’s a good one. He says that the data is inaccurate because it only tracks resales, not actual listings, and because it tracks only homes with mortgages under $417K.
However, we have the same problem in San Diego. Even the Case-Shiller index shows little decline in San Diego; the index peaked at 250 last November, and was 246 at its last release a week or so ago. It is down 1% year over year.
Just another opportunity to reflect on the horrible quality of the data. On housing prices, whether you look at the median, the OFHEO index, or the Case-Shiller index, the data really sucks.
Why? Since Case-Shiller matches same house pairs without the $417K mortgage restriction, a sale made in the 3rd quarter of 2006 should show that we are back to 2004 prices, a proper 10% or 15% decline. Yet it doesn’t. Why not?December 6, 2006 at 8:18 AM #41211powaysellerParticipant
This NYT follow-up tries to make sense of the statistics, and explains some of the biases in them. Still, I’m not satisfied with any of the answers given, because it doesn’t explain the big discrepancy between the index and actual valuations.
““Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s that took inflation into account.”
“Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. ‘We’re now going to combine a high amount of debt with falling home values,’ said economist Mark Zandi.” ”
This is from one of the NYT stories. Soon, we can substitute San Diego for Boston.
BTW, those waiting for my website, I was advised that I should incorporate, but for tax reasons, to do so effective January 1. (Incorporating is for legal protection, esp. since I will have forecasts and someone could sue me.) So I can go live with my site right after the New Year. I will not be competing with piggington. I remain a piggingtonian, always, and owe my discovery of the housing bubble to Rich Toscano.December 6, 2006 at 8:50 AM #41215daveljParticipant
Here’s my question: Would it be so hard for the government (or someone else) to keep track of sales prices on a per square foot basis, calculating medians for sales in the following three categories: less than $500K; greater than $500K and less than $1MIL; and greater than $1MIL? And then to do the same thing for listings as well? This information along with days on market would give everyone a much better feel for what’s actually going on out there.
Granted, this too would not be perfect, but it would be a hell of a lot better than the data we get from these clowns. There’s gotta be some research outfit out there already doing this sort of statistical work on behalf of institutions (hedge funds, private equity, etc.) and I’m ashamed to admit that I don’t know who or where they are. But I’m going to look into it…December 6, 2006 at 9:14 AM #41218sdrealtorParticipant
It wouldnt be hard to do but it would be impossible to do with any real added accuracy. Months ago, I tried to explain until I was blue in the face how bad the data was. There are unique aspects to and problems with every single data point. Anything you see on housing data is shaky at best. Now that some of you are delving deeper into the data you are beginning to realize the complexity and problems yourselves.
A few months back, Rich and I had an exchange here about this and his fall back was that its the best we got. My reply was thats a cop out and it is not good enough. The only real measure of what is happening on the streets can come from an experienced and ethical RE agent with the interest, time and ability to actually figure out what’s happening. On another thread, I posted examples of what can best be described as “same store home sales”. IMHO, only through examples like this can you truly gauge what is really happening in the market.
Every home is unique in some way so there will always be exceptions but from my chair I see prices back to somewhere around Late 2003/Early 2004 prices.
A thought that just struck me for the first time is that I don’t know how accurate all the charts we use around here to prove the existence of the bubble and project where we will go are. I am certainly not denying the existence of a bubble, I just dont trust any of the data we see. I think there is as an equally good chance that the charts greatly exagerate or underestimate the extent of the bubble as they accurately express it. No one really knows what will happen and to date I have been able to consistently stay 6 months to 1 year ahead of the trends using my gut instinct from watching this thing everyday from the front row. For those that care, I think that prices will go down nominally another 5 to 10% this year. Beyond that, I’m not banking on anything.December 6, 2006 at 10:23 AM #41226DanielParticipant
You know about the Case-Schiller index, right? This IS the “research outfit out there already doing this sort of statistical work on behalf of institutions (hedge funds, private equity, etc)”. It measures repeat sales, looks at home improvements, etc. Now, my opinion is that, although CS is sophisticated and it is the best we’ve got so far, it’s by no means perfect. I believe it doesn’t capture closing cost rebates, very common nowadays. And, like any index based on closed sales, it trails the market by one or two quarters.
However, I disagree with Powayseller that the index is way off. Of course, I know of San Diego sales that recently closed substantially below 2004 prices, but I also know of sales that closed substantially higher (in some cases, 25% higher). So I would hold off on making general statements about the SD market based on one’s personal observations. I would still trust more the CS index, partially flawed as it is.December 6, 2006 at 11:05 AM #41231brian_in_laParticipant
I agree with Daniel. If you look at the C-S index, it shows the huge run-up in prices. Shiller certainly thinks there is a housing bubble. I don’t think anything is nefarious about the C-S data. As I mentioned when posted the latest C-S data a few days ago (the data are released on the last tuesday of every month, if you are interested just go to the S & P website and hunt for it), there are some reasons why the index may not have completely tracked the top of the boom and also reasons why it may lag somewhat on the decline. But in my opinion people are getting too bent out of shape about month to month declines. Expecting a 20% drop in six months is just another form of speculative mania. If this is a bust (and I think it is), the decline is likely to be a slow, long grind. Check back in four years, not four months.
I love the “look at the flipper in trouble” listings. Schadenfreude is a delicious pleasure in very small doses. But, these listings are anecdotes, not data. In a market that is completely flat forever (but with some variability in pricing around a flat mean) it will of course be possible to find properties that lose (and make) money YOY. In a market that is declining 2-5% a year nominal, you will find even more losers. If you are looking for the losers, you’ll find them.
Anyway, I hope I am wrong. I am tracking some zip codes in LA because I want to buy. I would love a swift 40% decline…I just don’t think it is going to happen.December 6, 2006 at 11:22 AM #41233(former)FormerSanDieganParticipant
“For those that care, I think that prices will go down nominally another 5 to 10% this year. Beyond that, I’m not banking on anything.”
Since today is Dec 6 that comes out to … 0.25% to 0.5% PER DAY ! Are you serious.December 6, 2006 at 11:29 AM #41235sdrealtorParticipant
I meant in the next 12 months
The problem with your view is you don’t buy the data you buy the anecdote. It doesnt matter if all homes decline 20% (or whatever %), it matters that the one you want does. Also don’t forget that all pricing is at the margin. One low sale brings the rest down.December 6, 2006 at 11:37 AM #41237(former)FormerSanDieganParticipant
sdr – Thanks for the clarification. My comment was at least partially in jest.
I also agree with the range of your prediction for 2007. It falls in line with what I anticipate.December 6, 2006 at 11:39 AM #41238PerryChaseParticipant
It’s one thing trying to look at data to see general market movements. It’s another thing to look at individual properties that you’d want to buy.
If you’re looking at individual properties, just review the listings, sales histories and drive around. The feel of the local neighborhoods you’ll then gain is more valuable than any set of data that’s available.
If you’re a forecaster looking at data to prove a point or forecast the future, then the available data maybe inadequate.
If you’re looking to buy, I suggest renting a nice house in a neighborhood where you’d want to own. Don’t skimp on lifestyle by going with cheap rent because that’ll cause you to want to buy even more. Keep an eye on the market and drive around. Then look at buying in 4 to 5 years. Don’t even waste your time viewing houses or talking to Realtors now.December 6, 2006 at 11:41 AM #41241BikeRiderParticipant
Look, bottom line this one…… home prices will only go down if people are not willing to pay the current prices or are willing, but CAN’T pay the prices. If there are enough people willing to buy, be they crazy, more money than sense, rich, whatever, then prices will not drop. So, everyone sitting on the sidelines, waiting, better hope that people go broke so homes don’t sell and prices go down. If you are wanting to own a home, can afford one now, and you are just looking for a HOME, not an investment, go for it. But if you don’t plan to stay in the home, then you better think twice. Now if you just want to wait, you’ll probably get a better price in a few years. You’ll never be able to judge when to jump in.December 6, 2006 at 11:56 AM #41244brian_in_laParticipant
Hi SD…5-10% decline in 2007 seems in the realm of sensible to me…so I wouldn’t complain about that as a guess. I’d be less surprised by 2% than 20% though.
I also agree that you buy a particular house – in fact a conclusion to be drawn from my post was that even in a flat market, you could buy low and sell high and thus make money. That’s why people need a good realtor!
I guess we’ll see what that those “trillion $$ in resetting ARM’s” do…lots of folks seem to think that this thing is going to go nuclear in 2Q 2007…we’ll see…I sure am glad I’m watching from the sidelines!!!December 6, 2006 at 11:58 AM #41245PerryChaseParticipant
I beg to differ with you BikeRider. Say you can afford to buy at Bressi Ranch. The cost to “carry” that house is $6000/month. The cost of renting the same house is $3000/mo. You’d have to be crazy to buy even if you could afford to (see related thread). I would only buy that house if I were sure that the house would appreciate a minimum of $36,000/year.
People need to learn to manage their personal finances like businesses. A business doesn’t care if it owns or rents the building that it’s located it. The important thing is the profit to the shareholders at the end of year.
Yes, you can very well judge when to jump it. Look at carrying cost of houses in your neighborhood and compare that to the rent of similar houses. Talk to people in your neighborhood and see what they are paying. Internet surfing is also a good way to find out.December 6, 2006 at 12:04 PM #41246ibjamesParticipant
I personally think you’ll be able to judge when to buy, because the houses will actually be affordable to you, and other people will be buying. You could go up to a place for sale and think the prices make sense.
I’m looking for a home, but still, I’m not going to buy because I absolutely have to have it.
*Edit: I like perry’s explanation better, we were posting at the same time*December 6, 2006 at 12:05 PM #41247sdcellarParticipant
I agree with you Perry. For the most part it’s relatively simple math. If you can leave the emotion out of the decision, you’ll likely be better off.
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