November 2011 Resale Data Rodeo

Submitted by Rich Toscano on December 7, 2011 - 10:28am
The median price per square foot of San Diego resale homes took a bit of a hit last month, down 2.5% for single family homes, .3% for condos, and 1.9% in aggregate.  (The single family home price series is tends to give a more dependable read on the state of pricing power).  On a year-over-year basis, the median price per square foot was down 8.9% for single family homes, 4.4% for condos, and 7.5% in aggregate.



The Case-Shiller proxy, which based on a three-month average of the detached home median price per square foot, fell by an even 1.0%.  That's down 6.0% from last November.  Recall that the "official" Case-Shiller index hit a new inflation-adjusted low as of September -- it looks like we've fallen a couple percent further since.



Below are versions of the above graphs gridlined and aligned with calendar years in order to help elucidate the effects of seasonality.  Clearly, we are in what tends to be the weak season.





Closed sales dropped by 3.4% for the month, a smaller decline than we've seen in recent Novembers.  They were up 10.1% for the year.



Pending sales fell by a scant .8%, which is also better than the typical November drop.  Pendings were up 8.4% from a year ago.



Inventory was down by 4.7% for the month and down 13.6% from a year ago:



That left 5.1 months of inventory, down 3.9% for the month and 20.3% from last November.



This is actually a fairly healthy level of inventory, comfortably below a level at which the market could be considered "oversupplied."  It's interesting that prices have been weak in spite of the reasonable level of supply and the unreasonable lowness of mortgage rates.  We are of course in a time of year in which prices tend to get pressured lower, all other things being equal.  The market also has a lot of foreclosure inventory and a fairly anemic economy to contend with.

The negatives have gotten the upper hand lately, but I don't think a serious decline is in the works barring a major change in macro factors such as rates and employment.  A slow, unsteady grind towards lower housing valuation seems to be the more likely outcome for now.

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Submitted by NotCranky on December 8, 2011 - 9:19pm.

From the chart on the previous post by Rich, adjusted for inflation, prices are somewhere near the peak of the last cycle...why doesn't that make valuations suspect?

Submitted by Rich Toscano on December 8, 2011 - 10:23pm.

Jacarandoso wrote:
From the chart on the previous post by Rich, adjusted for inflation, prices are somewhere near the peak of the last cycle...why doesn't that make valuations suspect?

Good question... the answer is that home prices track better to rents and incomes than inflation, and rents/incomes have risen faster than inflation.

Submitted by an on December 8, 2011 - 11:18pm.

Jacarandoso wrote:
From the chart on the previous post by Rich, adjusted for inflation, prices are somewhere near the peak of the last cycle...why doesn't that make valuations suspect?

Valuations is not pure nominal price for most buyers. Valuation is price & interest for most buyers. To those who pay cash, yes, valuation is quite high compare to the past. However, majority of the buyers out there do not pay cash for their house. So interest rate plays as big of a role as the nominal price itself. At the peak of the last cycle, IIRC, interest rate was in the low teens. Rich's charts in "Shambling toward affordability" shows this very clearly. Also as Rich said, you have to compare it against nominal rent & income as well.

Submitted by sdduuuude on December 9, 2011 - 12:23am.

ShawnHCRW wrote:
"Take out the 2008 lines and the graphs all look pretty much the same. Looks like 3 years of relative stability to me."

Why stop there? Take out all the data after 2008 and we can stay in the bubble for ever! 2007 prices will look good again and we can get back to the way things are supposed to be, right?

If you take the first graph, and draw a horizontal line level with the last data point in the aggregate line, the earliest point at which it intercepts aggregate line is about Oct 2008, or 3 years ago.

How is that not 3 years of relative stability ?

Submitted by Rich Toscano on December 9, 2011 - 8:40am.

sdduuuude wrote:

If you take the first graph, and draw a horizontal line level with the last data point in the aggregate line, the earliest point at which it intercepts aggregate line is about Oct 2008, or 3 years ago.

How is that not 3 years of relative stability ?

REALTOR

Submitted by Jazzman on December 9, 2011 - 8:55am.

desmond wrote:
There is alot of effort trying to justify a "Flat or Sideways" market. I can't wait to read the justifications in 3-6 months.

Realtors say flat, buyers say down. We know the efforts are aimed at arresting home price deflation. At least the government has been honest enough to admit it.

Submitted by Jazzman on December 9, 2011 - 9:11am.

AN wrote:
Jacarandoso wrote:
From the chart on the previous post by Rich, adjusted for inflation, prices are somewhere near the peak of the last cycle...why doesn't that make valuations suspect?

Valuations is not pure nominal price for most buyers. Valuation is price & interest for most buyers. To those who pay cash, yes, valuation is quite high compare to the past. However, majority of the buyers out there do not pay cash for their house. So interest rate plays as big of a role as the nominal price itself. At the peak of the last cycle, IIRC, interest rate was in the low teens. Rich's charts in "Shambling toward affordability" shows this very clearly. Also as Rich said, you have to compare it against nominal rent & income as well.

Price has just become a number against which you calculate your monthly nut. It has been detaching itself from intrinsic value in recent years with remarkable alacrity. Affordability needs to be seen in the context of unintended consequences. Have you really preserved equity gains, or just made homes unaffordable for the next wave of home buyers?

Submitted by Rich Toscano on December 9, 2011 - 9:33am.

Jazzman wrote:
It has been detaching itself from intrinsic value in recent years with remarkable alacrity.

I just think these kinds of statements are meaningless if you are unwilling to provide data to back them up.

Submitted by Jazzman on December 9, 2011 - 9:42am.

These statistical reports on affordability, and even price indices for that matter are useful but more in an academic sense. However, they do play on consumer sentiments and we are seeing a game being played here.

The practicalities of buying a home are quite a different matter. Just read a dozen home inspection reports before you dip your toes. They are designed to inject reality into the home buying process, and they do. Your monthly nut is just the start, and a common mistake is to buy the maximum you can afford later to realize your costs curve is somewhat steeper. I am seeing deferred maintenance on a big scale in this market, as home owners can't get a loan to rehab, remodel, or even do a few basic maintenance updates. Prices in general are not reflecting these issues enough. So buying what you think you can afford can come with a bag of regrets.

There is no statistical imperative for the practicalities of home ownership. The more secure basis for home ownership is value. It will allow you to refinance, and be a less volatile store of wealth. Prices should therefore be allowed to fall, and declines should be met with encouragement not derision. While home price deflation has been the enemy of the industry due to the downward spiral it creates, I believe we are past that point and now is a great opportunity to let housing come back down to earth.

Submitted by Rich Toscano on December 9, 2011 - 9:49am.

Jazzman wrote:

There is no statistical imperative for the practicalities of home ownership. The more secure basis for home ownership is value.

And how do you determine value without numbers?

Submitted by Rich Toscano on December 9, 2011 - 10:00am.

BTW, Jazzman, your insinuations about "playing games," about price declines being met with derision, etc, are quite misplaced.

You are a latecomer to this site, so perhaps you don't know that I started it in 2004 to document (via data and statistics, which is the proper way to prove a thesis) that homes were stunningly overpriced. For the entire time, I have argued strenuously that overpriced homes are harmful to society, and that the best thing that could happen would be to allow them to become affordable again. I constantly ranted against the bailouts of the banks and real estate industries.

Over this site's life, I have taken a huge amount of heat -- first from permabulls who thought prices could never go down, and then from permabears who thought they would never stop going down. All along, I've strived to look dispassionately at the data and to figure out what's really going on. My analysis may be wrong at times, but it has never been and will never be driven by an agenda.

So please check your ad hominems at the door. My objection to your posts in this thread aren't based on my having some sort of bias or agenda; they are based on the fact that you have made sweeping statements that are utterly unsupported by the empirical data that I have provided, and that you refuse to provide any data of your own.

Rich

PS - The data I am primarily referring to can be found here (update to come this weekend): http://piggington.com/shambling_towards_...

Submitted by an on December 9, 2011 - 10:21am.

Jazzman wrote:
Price has just become a number against which you calculate your monthly nut. It has been detaching itself from intrinsic value in recent years with remarkable alacrity. Affordability needs to be seen in the context of unintended consequences. Have you really preserved equity gains, or just made homes unaffordable for the next wave of home buyers?

Do you have data to back this up? Rich have collected data and generated graphs. Both Rich and I have pointed you to them. DATA have shown that affordability is at an all time high in recent past. Example would be, buyers today pay less per month than buyers just 3 years ago, even when price have been flat. So, where's your data that show that next wave of home buyers are facing lower affordability level?

Submitted by desmond on December 9, 2011 - 11:44am.

At least with a few posters that have different opinions the post count got over 40 compared to the last 10 or so topic lovefests that probably average a mean nominal chart breaking total real value of 5.

Submitted by sd_matt on December 9, 2011 - 6:37pm.

So to play the what if game. Schiff is saying higher interest rates are a comin and I think Roubini is saying the same thing.

Submitted by NotCranky on December 9, 2011 - 9:51pm.

AN wrote:
Jacarandoso wrote:
From the chart on the previous post by Rich, adjusted for inflation, prices are somewhere near the peak of the last cycle...why doesn't that make valuations suspect?

Valuations is not pure nominal price for most buyers. Valuation is price & interest for most buyers. To those who pay cash, yes, valuation is quite high compare to the past. However, majority of the buyers out there do not pay cash for their house. So interest rate plays as big of a role as the nominal price itself. At the peak of the last cycle, IIRC, interest rate was in the low teens. Rich's charts in "Shambling toward affordability" shows this very clearly. Also as Rich said, you have to compare it against nominal rent & income as well.

By your own measure of "monthly nut", if I understand you, homes are overvalued? Rates should go nowhere but up. If it happens soon, today's prices will be high in retrospect because the monthly nut for the average buyer will be higher. Yes, I know there is not always a direct correlation, it seems like what you are saying though.

Whether or not other factors weigh against rent/income is hard to discern. I have some thoughts on that but don't want to go into it right now. But I will ask a question; If houses are extremely affordable and have been for some time now(by any metric), why aren't prices going up?

Submitted by an on December 9, 2011 - 10:22pm.

Jacarandoso wrote:
By your own measure of "monthly nut", if I understand you, homes are overvalued? Rates should go nowhere but up. If it happens soon, today's prices will be high in retrospect because the monthly nut for the average buyer will be higher. Yes, I know there is not always a direct correlation, it seems like what you are saying though.

Whether or not other factors weigh against rent/income is hard to discern. I have some thoughts on that but don't want to go into it right now. But I will ask a question; If houses are extremely affordable and have been for some time now(by any metric), why aren't prices going up?


Homes are not overvalued. On average, homes in SD are under valued. Here are the data Rich and I point to a few times on this thread: http://piggington.com/shambling_towards_.... If you lock in to a 30 years rate, rising rate doesn't affect you (in term of rates). As you just said, there's not always a direct correlation between rising rates and falling price. I would go further and say, I don't think there is much data showing any correlation, AFAIK. So, decreasing affordability, in my eyes would be brought about by improvement in economic condition.

As to your why aren't prices going up question, it would be same explanation as to why price keep on going up in 2002-2006 while houses are extremely un-affordable for some time. If affordability drive the market, then we wouldn't have seen this past bubble. It comes down to simple greed and fear (two faces of the same coin IMHO).

Submitted by sdrealtor on December 9, 2011 - 11:06pm.

To echo An it all comes down to pyschology. There are lots of potential buyers out there (including the more bearish posters on this site) that are fully qualified and able to afford a home but are fearful of prices dropping dramatically. The economic news coming out is mostly negative. The supply is constricted and it is difficult to buy a home because of lender involvement (approval for short sale or REO). Those factors overwhelm the affordability issue.

On a related note, I have a family member looking for a starter home. Everything priced under $350K that is decent, in good area and within range of the comps has multiple offers within a week or so. Entry level buyers are fighting to find a decent home while prices and rates are low. Its a bit crazy out there in that segment.

Submitted by pencilneck on December 10, 2011 - 10:04am.

The San Diego housing market trend is both sideways over 2 years and down on an annualized basis.

I personally wouldn't use "sideways over 2 years" to describe the market, as the first six months or so of those 2 years contained massive intervention. Yes, the intervention continues. However, when much of the intervention expired the overall market changed course for the worse.

My opinion is that describing the market as down on an annualized basis is currently the most accurate way to describe the market as a whole. I'd love to see post-massive-intervention annualized price gains. But I'm not holding my breath.

Submitted by NotCranky on December 10, 2011 - 2:43pm.

sdrealtor wrote:
To echo An it all comes down to pyschology. There are lots of potential buyers out there (including the more bearish posters on this site) that are fully qualified and able to afford a home but are fearful of prices dropping dramatically. The economic news coming out is mostly negative. The supply is constricted and it is difficult to buy a home because of lender involvement (approval for short sale or REO). Those factors overwhelm the affordability issue.

On a related note, I have a family member looking for a starter home. Everything priced under $350K that is decent, in good area and within range of the comps has multiple offers within a week or so. Entry level buyers are fighting to find a decent home while prices and rates are low. Its a bit crazy out there in that segment.

Could be a lot of psychological/mental factors at play beyond fear. People's perceptions of what is affordable can change downward, and that can be positive for them. In the real world there is a huge discretionary input into housing expenditures. Maybe optional outlays in other directions become a priority to many. I hope there is a general trend like that. The "negatives", IMO, should encourage it at least for the time being.

I understand what Rich is saying about needing some statistical derivation of "affordability", but pragmatically it is something that has to be decided at least a few years forward, looking in the rear view mirror. Under the current situation it would not be that far of a stretch to be hopeful of that outcome being positive, but it can also come across as cheerleading, given the negatives we all know about. Maybe that is what Jazzman is trying to get at?

(Not in the slightest accusing you of "cheerleading", Rich)

Submitted by Jazzman on December 10, 2011 - 3:52pm.

Rich Toscano wrote:
Jazzman wrote:

There is no statistical imperative for the practicalities of home ownership. The more secure basis for home ownership is value.

And how do you determine value without numbers?

Rich, it is innate. There weren't always numbers around to qualify worth. Everyone has their own sense of value, but it is an intuition that is fast being eroded. When you hear someone declare "that is outrageous", or, "I'm not paying that", they are expressing their preconceived sense of value. I am not dumbing down stats as they have a very important role, but when they run up against emotional responses such as the above, you need to ask which master do they serve?

Submitted by Jazzman on December 10, 2011 - 4:28pm.

Jacarandoso wrote:
sdrealtor wrote:
To echo An it all comes down to pyschology. There are lots of potential buyers out there (including the more bearish posters on this site) that are fully qualified and able to afford a home but are fearful of prices dropping dramatically. The economic news coming out is mostly negative. The supply is constricted and it is difficult to buy a home because of lender involvement (approval for short sale or REO). Those factors overwhelm the affordability issue.

On a related note, I have a family member looking for a starter home. Everything priced under $350K that is decent, in good area and within range of the comps has multiple offers within a week or so. Entry level buyers are fighting to find a decent home while prices and rates are low. Its a bit crazy out there in that segment.

Could be a lot of psychological/mental factors at play beyond fear. People's perceptions of what is affordable can change downward, and that can be positive for them. In the real world there is a huge discretionary input into housing expenditures. Maybe optional outlays in other directions become a priority to many. I hope there is a general trend like that. The "negatives", IMO, should encourage it at least for the time being.

I understand what Rich is saying about needing some statistical derivation of "affordability", but pragmatically it is something that has to be decided at least a few years forward, looking in the rear view mirror. Under the current situation it would not be that far of a stretch to be hopeful of that outcome being positive, but it can also come across as cheerleading, given the negatives we all know about. Maybe that is what Jazzman is trying to get at?

(Not in the slightest accusing you of "cheerleading", Rich)

Age probably has something to do with it. Putting things into historical context makes you view things differently. Look at any home that sold +15 years ago, and it will focus the mind wonderfully. For some of us that is not a long time ago, but for others it is as distant, as it is unfamiliar. What I find puzzling is that even recent history is screaming at us, yet we are too eager to forget. Just look at the peak on those graphs. Had the government and federal reserve not applied the brakes when they did, home prices would have continued on their then trajectory. Is the simplest of terms, home prices didn't correct fully. The fact that rates which are being held down makes them "affordable" is bit like apologizing to an amputee for cutting off his good leg, while praising the merits of prosthetic limbs.

Submitted by an on December 10, 2011 - 11:38pm.

Jazzman wrote:
Rich, it is innate. There weren't always numbers around to qualify worth. Everyone has their own sense of value, but it is an intuition that is fast being eroded. When you hear someone declare "that is outrageous", or, "I'm not paying that", they are expressing their preconceived sense of value. I am not dumbing down stats as they have a very important role, but when they run up against emotional responses such as the above, you need to ask which master do they serve?

I could have sworn that was what the permabulls were saying in 2005 when some of us were trying to explain the bubble with data.

Submitted by permabear on December 11, 2011 - 3:40pm.

sdrealtor wrote:
On a related note, I have a family member looking for a starter home. Everything priced under $350K that is decent, in good area and within range of the comps has multiple offers within a week or so. Entry level buyers are fighting to find a decent home while prices and rates are low. Its a bit crazy out there in that segment.

I have noticed just as a hobbyist that top properties continue to be snapped up same-day, especially coastal. There have been a couple recent gems in Encinitas and Solana Beach that have gone above asking price w/i 48 hours.

It's funny because when I bought my first house in 1998 it was entry-level and the price was $150k... now entry-level is $350k. I remember seeing $450k houses at the time and thinking "Who the hell has $450k?!?!?!?"

Now we're building a house (SLOWLY... two kids does that) and the total bill will come to $900k or so... but for the neighborhood that's a "steal".

Kinda mind-blowing, and I suspect that's what people like Jazzman get hung up on. But compounding numbers do funny things vs. the human brain. I always compare the linear to logarithmic graphs of the S&P 500 index to reset my brain... one screams bubble and the other screams boring as hell.

Submitted by ShawnHCRW on December 12, 2011 - 9:52am.

Rich Toscano wrote:
Guys, sdr's interpretation is completely legit. The crash phase happened in 08/09, since then the market has just kind of gone nowhere as nominal valuations move sideways, real valuations slowly decline, and the new stock of homeowners is much more financially able to service their debt. What's so objectionable about what he posted?

Instead of ignoring the crash and saying "looks like 3 years of realative stability" you could also say "despite massive government efforts and record low interest rates the delcine has stalled but shadow inventories remain high and prices show no signs of increasing any time soon."

There are different ways to frame a situation to change the view, but I guess we all have our biases to confirm.

Submitted by Rich Toscano on December 12, 2011 - 10:05am.

ShawnHCRW wrote:

Instead of ignoring the crash and saying "looks like 3 years of realative stability" you could also say "despite massive government efforts and record low interest rates the delcine has stalled but shadow inventories remain high and prices show no signs of increasing any time soon."

There are different ways to frame a situation to change the view, but I guess we all have our biases to confirm.

Yes, and I have said exactly that... it doesn't make the first interpretation wrong. They are both true and are both an important part of figuring out what's going on. I just don't see why describing what's happened without overlaying a predictive bearish (or bullish for that matter) narrative is so objectionable.

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