What is selling? How is it being paid for? What is median sale price?

The following is an excerpt from a presentation I made the other day before a Real Estate Investment Group.

WHAT IS SELLING AND HOW IS IT FINANCED?

I looked at "bread and butter" homes in an average priced area including South Daytona and Daytona Beach between 92 (International Speedway) and Beville Road. Area 25/32 (South Daytona and Daytona Beach Beville to ISB). Last 3 months under 100K  -  chose this because it is often the investor's market. It shows that REOs are over 1/2 of the market. This is important because when searching for what is selling in the MLS, you cannot always tell if it is a short sale, or an REO, or owner occupied.

OWNERSHIP

REO                               22              55%

SHORT  SALE                   8              20%

OWNER OCCUPIED          10             25%

HOW FINANCED

CASH                    20           50%

CONV                    8              20%

FHA/VA                 12           30%

COMPARISON YEAR TO YEAR USING MEAN (average) 2008 - 2009

Area 25/32 (South Daytona and Daytona Beach Beville to ISB)

SFR 3/2 YB 1970-1989

Last year  =  $165,394   107 DOM

This year  =  $121,081      86 DOM

27% decline year to year on average - median reported @ 22%

TOTAL MARKET

 2827 Single Family Residential ACTIVE on MLS

447 coded as foreclosure related

115 coded as REO (does this make sense?)

SOLD

1283 Total

380 coded as REO

98 coded as SS

478 foreclosure related

30% of sales are not coded as REO but ARE REO. This means as much as 60% of sales are REO.

25% of properties are actually foreclosure related but are not coded as such.

 I saw data from the President of the Orlando Board of Realtors that states at lease 46% of sales in that market were REO and may be much higher.

MEDIAN SALES PRICE VERSUS AVERAGE PRICE

Why does this matter?  Because almost every gov't report, news report, and even many industry reports refer to the median sales price. This has very little to do with VALUES. The median is just the middle - not the average price for any given market or type of property. The difference between median and mean (average) in the above market over the past year was 5%. The median price change was -22%. The mean price change was -27%. Median can actually be meaningless.

Median - middle - as many above as below

Mode - the most

Mean - average - best to compare a certain area, type, and time

For example - let's say that the following 7 similar homes sold in the same area in the past 90 days. Yes the spread is exaggerated to make a point.

21K, 22K, 24K, 31K, 160K, 180K, 188K

The MEDIAN is 31K. The AVERAGE is 89K. Is the median meaningful? Keep this in mind when hearing or reading market data. A large number of sales at the top or bottom of a market will make the data less important.

THE FUTURE

We are averaging 175 new foreclosure cases per week in this county. Translates to 9100 cases per year but not all will be foreclosed on. I don't see REOs going away any time soon. Our prices are currently at 2003 levels in the middle of the market.

As you can see - cash is sustaining the market. This explains why supply is down, sales are increasing, and prices are falling. People with money are still afraid to lend it to people without money, but they are not afraid to buy. The rich will need to feel comfortable with the market before they will lend again.

Landlords are buying cheap and undercutting the competition's rents. Landlords that bought in recent years cannot compete and are walking away and being foreclosed on.

The gov't continues to stumble around in the dark and has done relatively little to increase lending. Fannie and Freddie over lent in the past and created the bubble. Barney Frank actually said the other day that he was going to start forcing banks to lend again. Proof that gov't and moderation are mutually exclusive.

Most people have the bulk of their wealth in their home. We give away billions of our own money to help people buy a band new shiny Toyota and send the profits overseas. We destroy usable and fixable used cars so the middle and lower income people can't buy them. We fill the hog trough with trillions in front of special interest groups. We vote for people who are currently passing laws that will triple heating/cooling costs of homes, reducing purchasing power, demand, and values. Yet, RELATIVELY nothing to assist people maintain their wealth at home and allow them to regain some of what they have lost.

Things will improve slowly. But only if real change happens in our gov't and our lending institutions. It is still a good time to buy, but we have a ways to go before appreciation beats inflation.