The Weather Man's Guide To Understanding Real Estate Data

By
Real Estate Broker/Owner

Due to some recent improvements in seasonal housing data and statistics, a lot of people (Jim Cramer) and media outlets (AP) are beginning to sound the drum for a housing bottom.

I thought it would be worth pointing out that much like the weather, the majority of real estate data is best interpreted in a year over year comparison versus month over month.  The reason for this is because real estate is a seasonal industry, much like the weather is.  Home values, the number of listings, and the number of sales, are driven by the time of the year.

You don't see weather men or women comparing the temperature in August with that of February, but that is what we are seeing more and more of in the news as the media along with Wall St. are reaching to put a spin on what is an ongoing deterioration of the housing market.   

Broadly speaking there are four indicators that represent the health of the housing market; the median sales price, sales, listings or inventory, and the month's supply of housing.

In terms of the median sales price, during the summer month's, when there is more demand for real estate, price typically edge higher.  This is because there is more demand.  We are seeing this now.  According to the NAR, the median sales price in June of 2009 was $181,800.  In January of 2009 it was $164,800.  Does this mean property values have "appreciated" 10% in five months?  No.  In fact home values have actually fallen by -15.4% from last year when the median sales price was $215,000.  

In terms of home sales, demand for real estate has increased month over month on a "seasonally" adjusted basis for the past couple of months.  This is without question good news.  The NAR uses a seasonally adjusted basis to "remove" the seasonal impact on demand for real estate and project out an estimated number of annual sales based on the current pace.  Interestingly, home sales are still off by -0.2% from where they were last year.

The NAR is reporting that total inventory is down, and it is, month over month by -0.7% and year over year by -14.9%.  But much like the banking system, due to massive government intervention in terms of foreclosure moratoriums and loan modifications, it is difficult to get a pulse on exactly how "healthy" the foreclosure market or the inventory really is.  Some estimates show a shadow inventory, which represents homes that have already been foreclosed on by the banks but have not yet been listed for sale, as high as 700,000.  Additionally, RealtyTrac is reporting that foreclosure filings just set a new record in July and are up 32% year over year.  Even Bank of America and Wells Fargo are reporting in their quarterly earnings reports that their number of non-performing assets are surging 21% and 45% respectively, quarter over quarter.  The trend is that inventory, over the next 6-12 months will be on the rise.  

And finally, the month's supply of housing which represents the relationship between supply and demand.  This indicator is down month over month by -4.1% and year over year by -14.5%.  The improvement in this indicator is being driven by the decline in inventory, which as I described, is the result of massive government programs to delay foreclosures. 

As the number of foreclosures rise and as demand remains weak, the month's supply of housing will increase and this means home values will fall further on a year over year basis.

Comments (4)

John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Mark - And just like the weatherman, many of the "experts" often misread the data and come up with predictions that are just wrong.

Aug 15, 2009 01:20 AM
Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

Mark the media does it all the time. They recently did it with new home permits comparing summer to last November!  It is really pathetic in real estate that not many other than a few like yourself get it.  I guess that is why we are referred to as 'sales persons!'  We are not really good at looking at and breaking down the pig picture.

Aug 15, 2009 02:01 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Mark, I can see through the media. I know that there will always be people who need to buy and sell so we will have business, but it is not happy news when foreclosures are up again. I wonder if it's people who can't afford their payments or those who are just deciding to walk away because they are underwater? That's a stat I'd be interested in and one that would be almost impossible to get.

Sharon

Aug 15, 2009 03:01 AM
Mark MacKenzie
Phoenix, AZ

Sharon:  Actually according to a recent report, approximately 26% of all foreclosures are considered to be "strategic".  Although the definition of strategic may be subjective.

John:  Cramer would make a great weather man in Phoenix.  It's always sunny. :)

Jim:  Thank you for the compliment.  This type of half-truth reporting is true not only in real estate but in Wall St. and the economy as well.

 

Aug 15, 2009 03:14 AM