Price changes in perspective (log style!)

Submitted by Rich Toscano on May 22, 2021 - 5:42pm
Here's that rather alarming price chart from the prior post. The rampup this year looks absolutely huge!



The price increase has been quite large, but the graph exaggerates this effect. This is because the Y axis is on a linear scale... when you are looking at a long-term compounding series like home prices, a linear scale will have the effect of making the later moves look bigger and the earlier moves (off of lower levels) look smaller. Here's a simple example: a 10% increase on 50 is 5, while a 10% increase on 500 is 50. On a linear scale, the 50 will look a lot bigger than the 5. But they are both just a 10% increase.

This can be addressed by using a log scale, in which the numbers on the Y axis increase exponentially. This will make a 10% increase always look the same, regardless of whether this entails an increase from 50 to 55 or from 500 to 550.

Here are San Diego detached prices (pr/sqft) on log scale. Unfortunately Excel kind of sucks at making nice looking log axes (or maybe I suck) but it gets the idea across:



This puts the recent move in better perspective. For instance -- in the first chart, the recent move looks significantly bigger than the 2011-13 move. In fact, the current move is actually smaller than 2011-13 (in percent terms, but that's what we really care about).

The recent price increase is substantial. But it's not as big as the linear graph made it look. Going forward I'll be doing both linear and log charts for the long-term price graphs. Here's a log graph for Case-Shiller:



Another way of comparing to the 2013 boom is by looking at the year-over-year price increase:



In nominal terms, we are at just about the same annual increase as the peak (in terms of annual increase) of the 2013 boom. However, in inflation-adjusted terms, we are still below the 2013 rate of change.

The concern now is that the recent price surge began at a much higher valuation level than the 2013 one. More on valuations in the next post. 

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Submitted by sdrealtor on May 23, 2021 - 8:37am.

This is another case where the data does not match up with what happens on the street. The price increases of homes this year is significantly bigger and more jarring than the "2013 boom" for two reasons the first of which is the current increases came bigger, faster and in a shorter period of time. They didnt happen over a few years, the majority of it happened over 2 to 3 months but that is not the biggest difference.

What you see in the 2011-2013 data is a seismic shift in the mix of homes and how they were sold.

The period of 2009 to 2011 was the peak short sale market. It was the opportunity of lifetime to get incredible deals on just about anything.

In a short sale you had a seller who was indifferent to price. The objective was not to get top dollar, it was to get a buyer that would hang on through the lengthly short sale approval process at a price the lender would accept. These were far from the open market arms length sales we see now. There were some organic sales going on at relatively higher prices. But the short sales were the vast majority of sales and market makers.

In 2012 short sales were greatly declining and by the end of 2013 they were essentially gone having been replaced by organic sales.

This is not to say prices were not rising on each individual home between 2011 and 2013, they were. But much of what you are seeing is not the increase in the price of each and every home. It is a more of a shift in the market mix from lower end, distressed short sale homes sold by disinterested sellers to a move up/high end market mix sold by profit maximizing sellers with substantial equity.

Fast forward to today. Part of what we are seeing is a shift in the mix to more higher end homes being sold than ever before. Precious few entry level homes are hitting the market and we've never seen sales popping above $2M like we do now.

However the movement up in the price of each and every home is truly historic. It is unlike anything I have seen in 20 years by a pretty wide margin.

Rich is also onto something that its happening at a much higher valuation level. A move from $500K to $550K is much easier for a buyer to swallow than a move from $1.5M to 1.65M even at the higher rates in 2013 compared with much lower rates today

Submitted by Rich Toscano on May 23, 2021 - 9:37am.

The charts agree that what we've seen in 2021 alone is unprecedented. I was more trying to put perspective on the size this surge thus far vs. the 2011-13 one (with 2011-13 having had more time to play out).

Regarding compositional effects, I agree this is always something to be careful of.* But this is mostly solved by the Case-Shiller index which is why I place by far the most weight on CS. Unfortunately it's pretty laggy as you know so I also look at pr/sq ft and try to triangulate.

* (For those who maybe weren't around back during the bubble years, here is a good example of why this is so important. Back when the bubble had just peaked and prices started to decline, the median price held steady for a while. This is because fewer low-priced homes were selling than had been before the peak -- so the composition of homes sold shifted upwards. This composition effect masked the fact that prices were actually declining. Anyone looking at the median price -- which was most people back then -- didn't know that the bubble had already burst.

This is why I think the median price is pretty useless. Price/sqft is a big step in the right direction by at least removing home size from the equation. But Case-Shiller, which actually is calculated by comparing repeat sales of the same home, is the most accurate gauge of market-wide prices.)

Submitted by spdrun on May 23, 2021 - 11:12am.

If you want to do a proper log-scale graph in Excel, don't. Just convert the y-axis to log using =log(cell#) and graph the x column vs the new column.

You can then manually edit the numbering on the y-axis using a graphic editor to reflect the original scale.

Submitted by Rich Toscano on May 23, 2021 - 12:34pm.

spdrun wrote:
If you want to do a proper log-scale graph in Excel, don't. Just convert the y-axis to log using =log(cell#) and graph the x column vs the new column.

You can then manually edit the numbering on the y-axis using a graphic editor to reflect the original scale.

So it is me who sucks! I suspected as much. :-)

That is a very good idea. I don't really want to have to use a graphic editor for the scale though, I would rather have it just work. I suppose could just show the log(pr/sqft) or whatever. I will play with it if I get time, thanks for the tip.

Submitted by XBoxBoy on May 23, 2021 - 4:35pm.

Rich, thanks so much for doing this. I have to admit though that when I look at the price per sq ft chart the old way and now with the log scale, yeah I can see a difference, but it doesn't strike me as much of one. Anyway I look at it, it still looks like we've just had a big jump in prices. (I speak like it's past tense, but there's no indication, as far as I know, of it slowing.) And all this run up in prices during a pandemic, who would have thought? Not me! Guess that just proves not to trust my forecasting.

XBoxBoy

Submitted by Rich Toscano on May 23, 2021 - 6:14pm.

Thanks xbox. You are right, it has been a huge price increase. I just didn't want to exaggerate it with my linear scale.

Submitted by deadzone on May 24, 2021 - 12:40pm.

Rich Toscano wrote:
But Case-Shiller, which actually is calculated by comparing repeat sales of the same home, is the most accurate gauge of market-wide prices.)

Don't tell that to sdr, he says Case Shiller is inaccurate.

Submitted by sdrealtor on May 24, 2021 - 1:19pm.

deadzone wrote:
Rich Toscano wrote:
But Case-Shiller, which actually is calculated by comparing repeat sales of the same home, is the most accurate gauge of market-wide prices.)

Don't tell that to sdr, he says Case Shiller is inaccurate.

Dont worry, its only applicable to people that actually had the courage to buy real estate

Submitted by gzz on May 24, 2021 - 1:17pm.

I have never liked log scale charts, especially for economic/social science data.

I am always switching to linear when I view charts online and they have log by default.

On a linear scale, the 50 will look a lot bigger than the 5. But they are both just a 10% increase.

50 is a lot bigger than 5!

people that actually had the courage to buy real estate

Don't forget our good looks and winning personalities!

Submitted by sdrealtor on May 24, 2021 - 1:20pm.

But of course, as well as my rapidly improving golf game

Submitted by deadzone on May 24, 2021 - 2:17pm.

sdrealtor wrote:
deadzone wrote:
Rich Toscano wrote:
But Case-Shiller, which actually is calculated by comparing repeat sales of the same home, is the most accurate gauge of market-wide prices.)

Don't tell that to sdr, he says Case Shiller is inaccurate.

Dont worry, its only applicable to people that actually had the courage to buy real estate

Right, avoid the subject with some strange and weak attempt at demeaning the poster. You are great at that!

Submitted by sdrealtor on May 24, 2021 - 3:00pm.

Not at all. I've clearly stated my opinion on case shiller a bunch of times. While it's the best we got, it's horribly flawed just like your decision making. It got lags, makes no adjustments for whether a specific house has had significant additions or improvements, does not account for differences in market conditions when a home was sold by disinterested short sellers And later sold by profit seeking equity holders during the downturn and more. There I got both my point and ridiculing you in there this time. I can multitask

Submitted by deadzone on May 24, 2021 - 3:22pm.

sdrealtor wrote:
Not at all. I've clearly stated my opinion on case shiller a bunch of times. While it's the best we got, it's horribly flawed just like your decision making. It got lags, makes no adjustments for whether a specific house has had significant additions or improvements, does not account for differences in market conditions when a home was sold by disinterested short sellers And later sold by profit seeking equity holders during the downturn and more. There I got both my point and ridiculing you in there this time. I can multitask

All of your examples for Case Shiller "flaws" exist everywhere. So the fact that Case Shiller shows National home prices up 12% year over year cannot be discounted. You are the only person here that is clinging to the fantasy that San Diego is an outlier in this Pandemic real estate bubble.

Submitted by Rich Toscano on May 24, 2021 - 3:33pm.

sdrealtor wrote:
Not at all. I've clearly stated my opinion on case shiller a bunch of times. While it's the best we got, it's horribly flawed just like your decision making. It got lags, makes no adjustments for whether a specific house has had significant additions or improvements, does not account for differences in market conditions when a home was sold by disinterested short sellers And later sold by profit seeking equity holders during the downturn and more. There I got both my point and ridiculing you in there this time. I can multitask

Very true on the lag (although that's only ever an issue with the most recent couple of months).

This one is not correct though: "makes no adjustments for whether a specific house has had significant additions or improvements." It does does correct for this.

True that it doesn't account for different market conditions but I'm not sure why that matters? It's measuring prices... how would that be distorted by different market conditions?

Probably the biggest downside to me is that it lumps all of San Diego, a giant place, into a single number. (Well it has low/medium/high priced homes, but not broken down by area).

Submitted by sdrealtor on May 24, 2021 - 3:45pm.

How does it adjust for improvements? A house could have $200K in improvements and resell a year later for more simply because of that. That would be shown as market appreciation unless at least of portion of those improvements were subtracted from the higher price. How could they possibly assign a cost or even a value to the improvements added? That information exists nowhere except in the receipts of the owner. It is impossible to adjust for this.

House sells by disnterested shortseller in 2011 for 150K and similar home sold by equity seller goes for $200K the same month. Two years later, they both resell for $225K. How much appreciation was there in the market?

Maybe you take an average? Ok now there are 3 short sales and 1 traditional sale like this. Did the appreciation go down or did the mix cause the appreciation to go down?

Submitted by sdrealtor on May 24, 2021 - 3:42pm.

deadzone wrote:
sdrealtor wrote:
Not at all. I've clearly stated my opinion on case shiller a bunch of times. While it's the best we got, it's horribly flawed just like your decision making. It got lags, makes no adjustments for whether a specific house has had significant additions or improvements, does not account for differences in market conditions when a home was sold by disinterested short sellers And later sold by profit seeking equity holders during the downturn and more. There I got both my point and ridiculing you in there this time. I can multitask

All of your examples for Case Shiller "flaws" exist everywhere. So the fact that Case Shiller shows National home prices up 12% year over year cannot be discounted. You are the only person here that is clinging to the fantasy that San Diego is an outlier in this Pandemic real estate bubble.

Ive never discounted that prices are up many if not most places. Its just that they are up some places considerably more. Like here. I am far from the only person who understands this.

Also the lags are different everywhere. Philadephia is NOT included in the national case shiller because the lag is too long and data too unreliable

Submitted by Rich Toscano on May 24, 2021 - 3:44pm.

Also this deadzone/sdr back and forth is annoying. It's the new Brian.... every thread has to be threadjacked to continue this fight.

Talking about whether someone is a realtor or not, or whether they did or did not buy real estate at a given time, is just ad hominem. My view is that if you are resorting to personal attacks, you've lost the argument, or at very least, a lot of credibility.

Can we please stick to the facts and steer clear of the personal attacks and grudge matches? It is getting very tedious.

BTW in fairness it seems that dz keeps starting this (though sdr keeps rising to the bait) so I will specifically ask you, deadzone, to back off.

Submitted by sdrealtor on May 24, 2021 - 3:52pm.

Thank you and you are correct.

BTW I still think it is very important that the 2013 rise happened from an over shot bottom and a transition from short sales to traditional sales.

The more recent increase has come at a time when most were calling a market top and for a reversal. That makes this most recent price action that much more remarkable.

Submitted by Rich Toscano on May 24, 2021 - 3:51pm.

sdrealtor wrote:
How does it adjust for improvements? A house could have $200K in improvements and resell a year later for more simply because of that. That would be shown as market appreciation unless at least of portion of those improvements were subtracted from the higher price. How could they possibly assign a cost or even a value to the improvements added? That information exists nowhere except in the receipts of the owner. It is impossible to adjust for this.

Something to do with how it treats price outliers... I don't totally remember. It's in the CS methodology document.

sdrealtor wrote:
House sells by disnterested shortseller in 2011 for 150K and similar home sold by equity seller goes for $200K the same month. Two years later, they both resell for $225K. How much appreciation was there in the market?

The average of the two. It doesn't matter why someone sold or how they were feeling at the time -- what matters is the price, that's what CS is reporting, correctly. This is how price indexes work.

I'm not saying that the scenario you described is not analytically interesting, but it's not a valid criticism of CS.

Submitted by Rich Toscano on May 24, 2021 - 3:54pm.

sdrealtor wrote:
Thank you and you are correct.

Thanks brother.

sdrealtor wrote:
BTW I still think it is very important that the 2013 rise happened from an over shot bottom and a transition from short sales to traditional sales.

The more recent increase has come at a time when most were calling a market top and for a reversal. That makes this most recent price action that much more remarkable.

I agree that backdrop is interesting, but it doesn't invalidate the CS price index. It just gives those values context. (As does, eg, the rate backdrop).

Submitted by sdrealtor on May 24, 2021 - 4:39pm.

But these are not price outliers. Homes are sold in a wide range of conditions. There is simply no way to adjust for this as the background info does not exist. I cant stress this enough. this information DOES NOT exist anywhere

Assume short sale is 1 and traditional sale is 5. Average is 3.

This time 4 short sales at 1 and only 1 traditional sale is 5. Average is now 1.8.

Same houses sold for same prices but index has changed with no underlying change in the value of a home. Its a change in the mix

Indexes work best with things like stock where all items are homogenous. Every home is unique and no index can account for that.

Furthermore I have poured over data for a couple decades. The recorded sales prices do not adjust for whether there were concessions made that are often significant.

Condo sells for $300K. Next month another sells for $310K with a credit back to buyer of $310K. Or maybe a realtor buys one direct from seller and rather than taking a commission he buys it for $285K. That would show up as a decline in vlaue. This kind of data is not collected in sales data and would be counted as appreciation or depreciation rather than simply a change in terms.

Case Shiller is an index and measures changes in an index but it does not accurately reflect what is happening to the value of any given home.

Submitted by deadzone on May 24, 2021 - 4:05pm.

Rich Toscano wrote:
Also this deadzone/sdr back and forth is annoying. It's the new Brian.... every thread has to be threadjacked to continue this fight.

Talking about whether someone is a realtor or not, or whether they did or did not buy real estate at a given time, is just ad hominem. My view is that if you are resorting to personal attacks, you've lost the argument, or at very least, a lot of credibility.

Can we please stick to the facts and steer clear of the personal attacks and grudge matches? It is getting very tedious.

BTW in fairness it seems that dz keeps starting this (though sdr keeps rising to the bait) so I will specifically ask you, deadzone, to back off.

Sure I agree this is tedious but not sure why you are singling me out for the personal attacks, I think you have it backwards. SDR is the undisputed king of personal attacks. The only reason I even jumped into this was because I saw him attacking other posters in his typical arrogant, condescending manner and chose to call him out. To further exemplify sdr's insatiable need to attack people, he just revived a 15 year old thread just so he could take a pot shot at Poway Seller, calling her a "train wreck". What kind of weirdo does this?

But given that sdr generates about 50% or more of the comments on piggington web site these days, I guess you need to protect him.

Submitted by sdrealtor on May 24, 2021 - 4:14pm.

deadzone wrote:
Rich Toscano wrote:
Also this deadzone/sdr back and forth is annoying. It's the new Brian.... every thread has to be threadjacked to continue this fight.

Talking about whether someone is a realtor or not, or whether they did or did not buy real estate at a given time, is just ad hominem. My view is that if you are resorting to personal attacks, you've lost the argument, or at very least, a lot of credibility.

Can we please stick to the facts and steer clear of the personal attacks and grudge matches? It is getting very tedious.

BTW in fairness it seems that dz keeps starting this (though sdr keeps rising to the bait) so I will specifically ask you, deadzone, to back off.

Sure I agree this is tedious but not sure why you are singling me out for the personal attacks, I think you have it backwards. SDR is the undisputed king of personal attacks. The only reason I even jumped into this was because I saw him attacking other posters in his typical arrogant, condescending manner and chose to call him out. To further exemplify sdr's insatiable need to attack people, he just revived a 15 year old thread just so he could take a pot shot at Poway Seller, calling her a "train wreck". What kind of weirdo does this?

But given that sdr generates about 50% or more of the comments on piggington web site these days, I guess you need to protect him.

Well I guess you're not capable of a high road. Peruse the threads and my conversations with all other posters are collegial. Its you not me.

As for the 15 year old thread that was an attempt to get some more old timers to come back and share their experiences. We have had an increase in visits by oldtimers and I hoped to get more contributing. I could not care less about PS.

FWIW it came out of an offline convo with Coronita where he pointed out that even people who bought at the prior peak came out in great shape if they just held on. Not as great as others but certainly sitting in a home that is now up 50 to 100% of their peak purchase is nothing to sneeze at.

And Id take that last comment as a personal attack on Rich's integrity. Poor form....very poor form

Submitted by deadzone on May 24, 2021 - 4:12pm.

For this particular thread I guess I am to blame but it did prompt a discussion on Case Shiller which is relevant.

Submitted by Rich Toscano on May 24, 2021 - 4:50pm.

deadzone wrote:
But given that sdr generates about 50% or more of the comments on piggington web site these days, I guess you need to protect him.

Hahahahaha.... that is... let's put it very charitably and say that is misguided.

Anyway you can see who started it up in this thread. I'm sure I could -- if I wanted to spend time doing this, which I absolutely do not -- find plentiful examples of an sdr market comment followed by your "that's realtor propaganda" bs.

I mean, if you disagree, great. Explain why in logical, respectful terms. "You're a realtor" isn't an argument. For that matter, foaming at the mouth about the Fed isn't much of an argument either.

With that said I agree that sdr likes to stir the pot which is why that post was addressed to both of you. I just felt it was only fair to mention that it seems like you are usually first to drag things into the gutter.

Submitted by deadzone on May 24, 2021 - 5:14pm.

Rich Toscano wrote:
deadzone wrote:
But given that sdr generates about 50% or more of the comments on piggington web site these days, I guess you need to protect him.

Hahahahaha.... that is... let's put it very charitably and say that is misguided.

Anyway you can see who started it up in this thread. I'm sure I could -- if I wanted to spend time doing this, which I absolutely do not -- find plentiful examples of an sdr market comment followed by your "that's realtor propaganda" bs.

I mean, if you disagree, great. Explain why in logical, respectful terms. "You're a realtor" isn't an argument. For that matter, foaming at the mouth about the Fed isn't much of an argument either.

With that said I agree that sdr likes to stir the pot which is why that post was addressed to both of you. I just felt it was only fair to mention that it seems like you are usually first to drag things into the gutter.

Of course I was just joking about the "need to protect him". But I do think it is fair to say he generates 50% or more of the overall commentary on this site so that was no exaggeration. I also don't agree that I am the fist to drag things into the gutter. Just look at the last paragraph of the Poway Seller revived thread, that kind of commentary is uncalled for garbage and is all you need to know about what kind of person sdr is. Due to his high volume of comments on here he is allowed to be a bully, and anyone who calls him out gets the attacked.

Submitted by sdrealtor on May 24, 2021 - 7:01pm.

You know nothing about what kind of person I am. Many of the posters on this site know me personally. You Won't find anyone that knows me personally who agrees in the slightest. You've had a pathetic vendetta against me for over a decade. pretty much since you first arrived here. Rich has seen that and he just called you out for it but you keep digging a deeper grave.

Your obsession with me is more telling than anything and speaks to your integrity. I didn't stop you from doing anything. I've helped many people here and beyond achieve great success. Dare I say, I've changed the personal fortunes of hundreds of people. I've walked away from much more business in my career than I've done and I've done a ton. My integrity has never been questioned by anyone that actually knows me. Keep digging your hole

Submitted by deadzone on May 24, 2021 - 7:25pm.

You are truly delusional sir. I've posted very infrequently on this site in the last 10 years. It is you that seems to have a vendetta, perhaps you are still butt hurt about some comment I made in 2006? Just like whatever vendetta you seem to have about poway seller that you drag her name into the mud 15 years later.

Submitted by sdrealtor on May 24, 2021 - 7:43pm.

Neither have I for the last 10 years up until about a year ago. I stopped posting around 2012. I stopped by and saw all the political ranting last year. I tried to get the conversation back to real estate which I've helped do to some degree. You've wasted no time in returning to the attacks on me since I've returned. Again Rich called you out for it but you can't stop.

Submitted by Rich Toscano on May 24, 2021 - 7:43pm.

Well I can see I did a great job de-escalating that situation.

How about we leave it at that. You've both said your piece.

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