Two Important Statistics Determining
Market Momentum
Sales momentum for single-family, re-sale homes in Santa Cruz County dipped into negative territory in September for the first time since January 2009. This trend continued in October.
We calculate...
sales momentum by using a 12-month moving average to eliminate seasonality. By comparing this year's 12-month moving average to last year's, we get a percentage showing market momentum.
In the chart below...
are two of the most important statistics determining market momentum. The blue shows momentum for home sales while the red line shows momentum for pending home sales.
Sales momentum peaked in July and has been trending down ever since. Pending sales, which normally track closed sales closely, have jumped out of the norm due to the large number of foreclosure and short sales in the past two years.
In a normal market...
pending sales close within 60 days. In today's market, pending sales are taking much longer due to the high number of foreclosure and short sales, which require lender approval. This has pumped up the number of pending sales, which, in a normal market would indicate increasing sales in the coming two months. But, because a majority of pending sales are foreclosure or short sales, a greater potion of these sales never close.
Pricing momentum...
on the other hand, generally lags the buying and selling indicators provided by the sales momentum trend. In the chart below, the purple line shows the median price momentum indicator.
As you can see, when the sales momentum indicator changed to a sell signal in May 2005, prices didn't peak until November, when they started a gradual decline. The median price indicator really started falling when it crossed the 0 axis in February 2008.
The sales momentum indicator hit its low in June 2008 then started turning up, but the price indicator kept falling until sales momentum's next peak in May 2009, when pricing momentum started picking up.
More statistics...
The median sales price for single-family, re-sale homes was down, year-over-year, for the fourth month out of the past five. The median price was down 0.8%.
Inventory turned downward, as is its wont this time of year, dropping 8.9% from September. Year-over-year, inventory was up for the fifth month in a row: 21.3%.
The sales price to list price ratio was down 0.7 of a point to 96%. The ratio's median since 2003 is 97.9%.
Remember, the real estate market is a matter of neighborhoods and houses. No two are the same.
For complete information on a particular neighborhood or property, call (831) 247-9140.
Statistics: Tracking Momentum
As we mentioned last month, the Internet is strewn with statistics, some good, some bad, and some downright ugly. So, what are statistics for?
Statistics are for...
determining the best time to buy or sell real estate. If the statistics you are tracking do that, they're good. If they don't, they're misleading, at best.
Tracking momentum...
is the best way to determine when to buy or sell real estate. The question becomes which statistics to track.
Robert Campbell, a San Diego based real estate investor, in his 2004 book "Timing the Real Estate Market", lists five "vital signs" he tracks to time the market, in order from strongest to weakest:
1. Existing home sales
2. New home building permits
3. Mortgage loan defaults
4. Foreclosure sales, and
5. Interest rates
He uses the same basic formula for all five: (current 12-month moving average-previous 12-month moving)/current 12-month moving average.
Finding the data...
means tapping into a variety of sources.
Sales data is the easiest to track. Local newspapers publish this data each month. If you want historical sales data, you can call us and we'll provide it for you.
In California, new home building permits are tracked by the Construction Industry Research Board. The board charges for their data. (http://cirbdata.com)
There are a variety of sources for mortgage loan default and foreclosure sales data starting with the county recorder's office. Other sources, for which you will have to pay are: http://dataquick.com, and http://foreclosureradar.com.
Interest rate data can be had at a number of different sites: http://hsh.com, http://bankrate.com, orhttp://federalreserve.gov. While Campbell tracks 1-year t-bills, monthly mortgage rates can also be used.
Next month, we will review the timing method Craig Hall uses in his 2003 book, "Timing the Real Estate Market: How to Buy Low and Sell High in Real Estate."
This author identifies seven trends to track to determine when real estate cycles are about to turn.
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Susan Grant, David Lyng Real Estate, Santa Cruz & the Monterey Bay Coast
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