Nov. 20, 2011
|
|
|
Are Home Prices Under Pressure?
|
Regular readers of this blog will know that I'm no shill for housing. There's plenty of those voices already, so it's not really needed. Most of my columns are based heavily on data, and I try to draw reasonable inferences from that data that are often enhanced by my day-to-day interactions with the buyers and sellers that actually make up the real estate market. There's been plenty of negative press out there about housing, but I can't stand unsubstantiated, inflammatory 'news'.
That brings me to today's article on Boston.com. It's a "news" piece, as opposed to an opinion, that basically says the housing market is depressed, and there's no evidence of any recovery, and virtually everyone thinks that it will stay that way for the foreseeable future. The article ties into a number of popular themes, but is seriously lacking in one respect: It doesn't have any facts.
Ok, that's harsh. It has two facts that relate to the piece, and two or three facts about historical housing recoveries (interesting, but not relevant), and it cites the unemployment rate, which is a fact, (although it's only tangentially related to housing). But such a low number of facts is an issue for two reasons: 1) Many of the premises of the piece are easily challenged 2) collection of facts relevant to the piece is pretty easy.
I'm literally at a loss of where to start, as I had problems with virtually every paragraph. But I guess I'll start at the top of the piece.
..."Foreclosures, which slowed as banks wrestled with legal problems, appear to be accelerating again"...
The facts couldn't be in more opposition to this. The Warren Group regularly publishes foreclosure data in MA. Here's last months report, from which they state, "Foreclosure activity statewide dropped again in September, marking the 12th consecutive month that both petitions and deeds declined by double-digit percentages from the same month in the prior year, according to The Warren Group, publisher of Banker & Tradesman."
So for an entire year, petitions AND deeds, have dropped by double digit percentage points. This clearly shows a decrease in foreclosure activity. And for the record, in this forum we don't typically pay a lot of attention to "same month in a prior year" activity changes in isolation, but as a year long trend means that data holds water. I can tell you from my experience the foreclosed properties are thinning out, and they are putting less pressure on many markets. I was not surprised that the data supported my anecdotal feelings. This reduction in foreclosures is a positive sign that we're going in the right direction. Ok, back to the piece:
... "few housing specialists expect any notable improvement in the housing market anytime soon"...
um, hello? Was anyone paying attention in the last two years? 2009 was a BRUTAL year for housing. A miserable time to sell, and it wasn't much more fun buying with the credit markets frozen. We have already had a notable improvement since then. Housing stocks have fallen, prices have stabilized, days on market is falling across the state. I guess what they mean is that a stable market is boring, or that prices need to go up 5% a year for a "notable" improvement, but that's silly. If prices are falling, and they stop falling, I call that an improvement. But maybe I'm alone here.
...Single-family home sales in Massachusetts are unlikely to top 40,000 this year, which would be the lowest number since 1991,..
We finally get a fact and it's a poor supporting one. Transaction volume is USUALLY correlated with prices. But it's not a good metric for this piece. Housing is about supply and demand, and the sales number is only worth looking at if you're also going to look at how much housing stock didn't sell, or how long it's taking to sell (the piece fails to do either of these things). The piece basically assumes that the low transaction volume is indicative of a troubled market, but that's a wrong assumption. I would argue that the volume is low because huge numbers of people are re-financing and staying put. All those re-fi's are taking sellers out of the market, leaving many markets with too few houses. Buyers are picky and cash strapped, unable to purchase houses that need a lot of work, which further dilutes transaction volume. So in the current environment transaction volume is far less relevant than it should be. Regrettably, there are no easily accessible stats for how many re-fi's keep potential sellers from selling, and buyers being cash strapped is based on the recession and unemployment numbers but there's no hard data for that either. But my main point is just to point out that transaction volume is not really indicative of where the market is at this juncture. Prices are a much better indicator of where the market is at.
...Several factors are contributing to this relentless housing downturn....
Except the "downturn" has stopped, which I guess means it has relented.
...Families, hit by unemployment or cuts in pay, are struggling to keep up with mortgages, extending foreclosures into rural and suburban areas....
Hey, I'm not saying it's not tough out there, but Warren and Tradesman says foreclosure are down compared to last year, so I don't really see how they are "extending". They are "contracting".
...That’s less than the 20 percent fall experienced recently when prices hit bottom in March 2009. Since then, home values have recovered some, but are lately bouncing up and down with no clear direction....
How about that? We both agree that 2009 was the bottom, and this piece says that prices have "recovered" some. I'm sorry, I don't get it. If prices are up, how are we in a downturn? Someone please tell me what I'm missing here. And "bouncing up and down" suggests that there's this roller coaster of price changes out there. There are stronger months, and weaker months, and maybe, if you look real close, prices are moving a bit in both directions, but it's hard to tell.
...Three years later, distressed properties continue to weigh down the housing market....
This really isn't true. Too much inventory ( distressed or not,) and/or not enough purchases, will cause prices to fall. But prices aren't falling, so WHAT AM I MISSING?
Ok, that's enough, I've vented. You get the point. Foreclosures are (clearly) down, prices are stable, and 2009 is long since in the rear view mirror. Will we see price appreciation in the coming years? Sure, but not very much. Does that mean the market is bad? No, it doesn't. It means housing will get more affordable as people's incomes improve and prices stay the same. So that's OK too.
Just to be clear, I don't think the market is great for all sellers. But it isn't bad either. If you look at the market data in Sudbury, Natick, Hopkinton, Ashland, Holliston - these towns are very, VERY good for sellers. The data is unambiguous. Most towns are pretty neutral and some towns are struggling with too much inventory (like Worcester) and are feeling price pressures. It's all very mixed and to paint it with a broad brush like this without supporting data is just bad reporting.
Hope that clears it up.
Do Good Things Today!
Matt Heisler
*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.
