What is the State of the Housing Market? Please choose the best answer.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.
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Interest Rates Jump. Unfortunate, not Catastrophic.
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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.
None of the above... I prefer Rent vs. Buy Calculations. As we are seeing in Las Vegas with the price drops in the 4th quarter of '07 and January, there are deals out there where it is cheaper to buy then rent which to me makes more sense then bringing up yesterday's news in today's media.
Hi Katie! uhmm.. er.... do I have to choose one of those three? What I would like to do is find the statistics for the very *local* market for all properties under consideration.
Kirk - Thanks so much, couldn't agree more. I have had some clients pick up a home they love at a price they can easily afford after waiting for several years.
Paul - Yes! My favorite rent vs buy calculator is in my post here.
Hi Jim! Excellent point--micromarkets are really what a buyer needs to be monitoring once they get over the "fear factor" in nationwide numbers. In my area of Arlington, VA, buyers need to be monitoring individual buildings, or even 1 vs 2BR units in the same building. Depending on where you're looking, 1BRs could be going up while 2BRs are still coming down. Statistics in general can become less useful if you use them as the only deciding factor. I try to encourage buyers to at least start narrowing down what they want, so that they can start following the appropriate trends, whether it's the nationwide stat or down to a set of units in an individual building.
Thanks for your comment!
Katie,
Great post! Very balanced - far better than I could do. The interesting thing for me is this: if someons is planning to buy, but waiting for several months of positve news, aren't they risking today interest rates and possibly the best bargaining power avialable while putting off the inevitable anyway? In other words, if you are planning to buy anyway, and it's just a matter of now or later, why wouldn't you go for now - given that it comes with great bargaining power and near record low rates? The argument for later - meaning that you wait until the media has proclaimed the market corrected - may make people feel comfortable, but is more likely to come when the bargaining advantage has moved more to the seller.
Investment stratgegy - these are such interesting times.
David, thanks for the comment, and the kind words. I'm with you on the "contrarian" strategy...buying somewhere near the bottom and negotiating the deal you want on the home of your choice, seems to me to be a better option than waiting until there is lower inventory and higher interest rates. You can't find home of your dreams at the price you want unless you're actually out there looking for it.