What is the State of the Housing Market? Please choose the best answer.
A. Looks like the start of a recovery.
NAR Q3 2007 Report indicates roughly half of US markets show an increase in median home prices.
B. About flat, plus or minus 1%...OFHEO reports
Home Prices down 0.4% in Q3 2007C. We have years of decline ahead of us...start keeping cash--strike that, better make it Euros--in your mattress, folks! Case Shiller reports
"The Sky is Falling, The Sky is Falling!" (Ok, that wasn't really a headline attributed to them, but that's basically the message in all of their press releases...pick which ever press release you want.)
Ok, pencils down. You all get a gold star. No matter which one you choose, you're correct. Why?
It comes down to the methodology. The National Association of REALTORS® statistics captures the median value of home transactions that come from all of the Multiple Listing Services nationwide. They cover all home sales at all price points, and release data in a relatively timely manner.
OFHEO, the government agency that works with Fannie Mae and Freddie Mac, also releases its quarterly analyses. They cover 287 markets, but because they are primarily concerned with the conforming loan market, the track only resales that meet that criteria (until recently, loans under $417,000. See my post on Conforming Loan Limits.) It also includes refinancings, which arguably have more generous appraisals. FYI, OFHEO does typically include an attempt at reconciling their numbers to Case Shiller. Because CS is a privately owned index, the exact methodology is impossible to duplicate.
Case-Shiller, which is probably the most widely quoted analysis, covers only 20 US markets BUT includes ALL price points and loan types-exotics, sub-prime, and limited documentation. Of course the 20 metro areas covered are very large ones, which typically have more expensive homes (anyone ever compare a 4BR colonial on an acre in North Arlington to a 4BR colonial on an acre in Cleveland?) It excludes 13 states completely and has limited information on 29 others-so incomplete or missing data from 42 states! It also weights transactions-a $700,000 home gets weighted twice as heavily in their index as a $350,000 home. But isn't a 10% decline a 10% decline, regardless of the baseline? Apparently not.
Dramatic headlines sell papers--remember all the 2004-2005 headlines screaming Buy! Buy, Before You're Priced Out Forever! Doesn't sound like a great idea in hindsight, does it?) While I'm definitely not saying that those in the industry can't spin stats better than a Maytag, I did find this little tidbit from the NAR pretty interesting:
"Another factor that rarely gets attention is that Dr. Shiller, a Yale professor, has a side business in Chicago. His index is used at the Chicago Mercantile Exchange for hedging housing futures values. The more hedging of bets that occur, the more profits go into Dr. Shiller's bank account. And more hedging of the bets will take place if people believe there will be a crash in housing values. So naturally he has a financial incentive to "scare" the market."
So what's a buyer to do? Whom to believe? First, understand the methodology and if one matches up with your situation, pay closer attention to that one. Are you in one CS's 20 markets and looking to use a no doc loan for a $600K home? CS may be the better measure for you. Are you looking to buy below $417,000? OFHEO may be a better report for you. Want the broadest measure possible? Use NAR. I find that with statistics, perception is reality, and no one calls a market bottom until it's months behind us, and in the meantime, life goes on. If you're buying a home, as opposed to an investment property, then do what's best for you, pick a time that works with your life, plan to stay there at least 3-5 years, and buy only what you can afford.
Read more: See my post from last year on Yes, the Market is Down 7% AND up 1%
Contact Katie Wethman, CPA, MBA, REALTOR® at (703) 847-3336 or via email to list your property for sale or to purchase a property in the Washington, DC, Arlington, Alexandria, Fairfax County, Fairfax City, or Falls Church City. I specialize in first time buyers.
Copyright © 2008 by Katie Wethman, All Rights Reserved.
Visit my website to find out more about my services or search the MLS for Arlington and Washington, DC, properties and read more on my blog.
;)
Links;)
Tags (Tag Cloud);)
Archives
Great Post. The good ol' days are now if you are patient toward buying your next home or investment property. After-all rates were over 10% 20 years ago and I suppose the folks on the sideline can wait for those rates to come back!
The smart set is out there picking through the good deals now and when the rest of the lemmings jump on board the good deals will be gone.