Housing Bubble Bursting?

[DTB]

As an appraiser, You should know that median is not the way to measure the housing price trend in a market like city of Los Angeles with huge variables and price spread. The housing price in the city of Los Angles is from $300,000 to $45,000,000.
Look at the below sample:
The median of the first column is $100,000 and the median of the second column is $110,000. The first column that has lower median sales price has higher sales prices below and above that median sales price than the second column that has higher median sales price.
The median for the housing price doesn’t prove anything. It is a center point where above it is higher prices and below it is lower prices. It doesn't prove anything

Price Price
$ 50,000.00 $ 20,000.00
$ 50,000.00 $ 30,000.00
$100,000.00 $ 30,000.00
$100,000.00 $ 30,000.00
$100,000.00 $110,000.00
$150,000.00 $110,000.00
$150,000.00 $150,000.00
$200,000.00 $150,000.00
$200,000.00 $150,000.00
Median $100,000.00 $110,000.00​

Amazing that the posts showing negative trending never get this depth of analysis.

It's always; LOOK OUT BELOW!

 

[DTB]

By way of clarification, I've also come to change my opinion about how the market would unwind as a result of these and other little exercises I've been running on the different datasets. I started off back in 2002/2003 thinking the lower end would hold up better and even continue to improve as the upper ends stagnated and declined. I figured the price ranges would compress like an accordion just as it did the last time. But when I see the opposite occur in 2005 I am compelled to rethink that and try and figure out the reasons for what is actually happening.

Whether you guys choose to believe me when I say this or not, my opinions are following the information, not the other way around. That's why I'm looking for the information and that's why I'm being sincere about wanting to see something of substance from you guys, because it might help me to better understand what's going on in my market. So by all means, if you've got it, bring it. There is much to be learned here yet.

George,
I think what we are seeing is the widening between the haves and the have nots. This is being manifested throughout our economy. I don't profess to know if this is a good or bad thing overall. But I do know which side I want to be on and am preparing my kids to be on the winning side in the event this is a long term situation.

 

[Brad Ellis]

Guys,

Interesting stuff. Randolph, thanks for the Smith article link. I agree that such measurements are always tenuous.

It looks to me like the data available for the market in which Pam works and in which Randolph and George work is clear. No disputing this localized data.

What is not clear- at least yet- is what the national compilation of data from local markets will show. OFHEO data from conforming loans is not due until June 1 (for Q1 2006).

Less clear will be the overall impact upon the economy. What we do know is that if there is a negative impact upon the economy making it slow will also reduce inflationary pressures thereby allowing interest rates to decline.

Frankly, from my layman point of view, what I see nationally is a slowing of the RE markets that will result in some price declines. Not a bubble, in my view. Rather it appears to be the natural RE cycle kicking in.

Of course, local markets will show differing results. For example, Pam notes the increase in inventory that is drastic, but it does not yet aply to all of FL- one of the hottest markets. Orlando is still increasing and other areas have stabilized from the data I have seen. Carlsbad got hit, yet Schiller himself predicts a continuing increase in SD county thru 2006 with a decline in 2007- and in neither case has he predicted anything like a double digit change.

But what about Chicago, NYC, San Fran, etc. I have seen slowing but no decreases in those general markets for SFR and 2-4.

Tracking this ought to be fun!

Brad

 

[Pamela Crowley (Florida)]

Thank you Brad.

Some Appraisers and Realtors in the Orlando area are reporting the same stats I'm seeing here. It all depends on who's spinning the data. David Stevenson is reporting the same stats from his somewhat rural area of FL. I'm getting the same stories from people throughout FL.

Of course, all of these are hearsay.....

 

[Pamela Crowley (Florida)]

Here's some Orlando stats:

http://www.orlrealtor.com/Files/PDF/Orlando8YearHistory.pdf

Comments from a Realtor about this:

Is it just me or does going from 2,956 listings in March 2005 to 14,559 listings in March 2006 seem a bit scary?

I know the industry generally reports sales compared to either the previous year or previous month. The current statistics is sales are down 20% over last year.

Would it make sense to report Sales as a percentage of Inventory?

For example in Orlando:

March 2005: 2529 Sales / 2956 Inventory = 86.9%

March 2006: 2781 Sales / 14559 Inventory = 19.1%


Down quite a LOT more than 20%.

1 over those numbers gives us the “Months Inventory”. Which may be a comforting thought to Sellers (We just have to wait a little longer to sell) but they do not tell the whole picture… prices have to come down or you’ll “never” sell.

 

[Steve Owen]

I think it's interesting to remember what we are talking about

http://www.breitbart.com/news/2006/03/24/D8GI0TIO0.html
New Home Sales Plummet in February
Mar 24 10:22 AM US/Eastern
By MARTIN CRUTSINGER
AP Economics Writer
WASHINGTON
Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation's once-booming housing market is cooling off.
The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes. It was the second straight monthly decline and was much bigger than the small 2 percent dip that Wall Street was expecting.


PS: 2% is a little different than 10%. Si or NO?

Two percent is a little different than 10 percent. However, one month of data is a bit different than a trend. It's important to remember that these markets are naturally cyclical and one should not place too much emphasis on a short period of data.

On the other hand (from the article)

Sales of new homes have fallen in four of the past five months with the sales rate of 1.08 million units the slowest pace since May 2003.

I was there in May of 2003, and I remember it as being a pretty good market for houses in this area. The thing I had noticed at that time was that DOM stats were slightly longer than they had been. However, they had been under 90 days... probably not sustainable in this market area.

Still, even though I have not seen any specific information to believe the housing market is undergoing major cooling here, I expect it to cool some. With interest rates increasing and incomes static that is the most likely outcome in the abscence of some other economic influence. One possibility for such an influence is a major new industrial development planned for west of town. This could bring enough new jobs into the area that rates in the range of 8 or 9 percent on mortgages (which is where I suspect they are headed) would not make too much difference. (Of course, rates in the 15 to 18 percent range could affect the overall project.)

 

[moh malekpour]

It amazes me when some economists or NAR analysts use data that are in their favor to prove that there is going to be a soft landing. I don’t say they lie but I say they don’t say the whole truth and that is misleading. For example, they say the following:
Total sales in the March of this year was 3% more than the sales in Feb. (fact)
Total inventory in the March was more than Feb (fact)
Conclusion: because the total sales in March was more than Feb, the decline in market is going to be gradual and soft landing.
To me, comparing March sales with Feb sales without factoring or disclosing following facts is misleading:
1-Feb is always colder month than March and in some areas the sales are slower in colder weather
2- Feb is the month after holiday vacation and most people are in the process of putting their life back together
3- more importantly, the month of Feb has 28 days while March has 31 days. Many sales can be added to the total sale just for those extra 3 days.

 

[Randolph Kinney]

I have not broke down the statistics to the degree George has however, I am seeing more purchases at $500,000 and less and all with 100% financing. I am also seeing seller concessions as the norm. It is typical for the seller to pay buyer's closing cost (all of it or up to $15,000) at the close of escrow for this price range. The MLS does not document the seller concession and the Realtors are not talking when asked about it. More marginal buyers are purchasing homes. They don't have any money to cover the transaction costs.

This is inflating the recorded purchase price. If the lenders were required to deduct the amount of assisted closing costs from the loan amount, the purchase price would come down accordingly.

 

[Mike Simpson]

"That's why I'm looking for the information and that's why I'm being sincere about wanting to see something of substance from you guys, because it might help me to better understand what's going on in my market. So by all means, if you've got it, bring it. There is much to be learned here yet."

I do a mountain of research (I've cited some of it here in the past). Furthermore, I've traveled to a number of these regions repeatedly over the past 5 years (I don't just invest in my own backyard). However, no amount of data, or personal success I could point to as evidence will ever convince those who've worked themselves into a frenzy over the past four years. Some have taken Bubblemania to cult like levels.

I've said it before...I'll say it again...a few of you have A LOT more free time on your hands than I do. The more than 3,000 posts that I have managed over these six years has taken a lot of time I wish I could get back. I have NO DESIRE to look up story after story, year after year, or formulate charts & graphs to attempt to convince some other "chattering monkeys" that the sky is about to fall. When I put that much time & energy into something...I expect to profit in the end. I either want to be paid for my time, or put the information, analyses, and conclusions to work earning some payola. That's the ultimate payoff...the true test...not debating here (for years) with those whose minds you'll never change...what's that going to achieve?

Finally, I know Japan has gone through some ups & downs George & Greg, however, the negative stories you're presenting are overblown (kinda like the Housing Bubble articles & all the "tipping point" hoopla which has been presented for some four years now). I mean...I was there and saw for myself. Sorry, but I'm not going to take the time to scan my passport & a picture of myself in front of Fukuokajo Castle.

-Mike

 

[George Hatch]

I didn't write any of those stories and it seems to me that if the widely reported and multi-sourced data all reports 250% change in value on a nationwide basis that would be something to take seriously. You either have something of substance to back up your comments and refute the reports compiled by the government or you don't. As far as I'm concerned, the wealth of data and reports that say otherwise completely outweigh your "I toured Japan" analysis. Nothing personal and it's not just you; I wouldn't take any realty agent's word on pricing without checking up on them.

You don't want to bother to bring anything of substance in to back up your comments? No problemo. I'm sure you won't mind if we consider your comments within that context.