Dec
18
2007
RMLS Market Action November
By Charles Turner
Using the average sale prices for the twelve months that ended with November 2007 compared to the twelve months ending in November 2006, the average sale price appreciated 6.5% ($340,900 v. $320,100). Using the same formula, the median sale price also appreciated 7.0% ($288,900 v.$270,000).
Unless December is really bad, I may have spoken too soon revising down my 2007 numbers.
I’ve been tracking these number for quite some time now and am I starting to notice the tendency for the RMLS folks to round up a bit more lately.
As for the rolling averages:
Jan 06 – Nov 06 – MSA: 269,909 (reported 270,000)
Jan 07 – Nov 07 – MSA: 288,427 (reported 290,000)
%6.86 using the rolling averages.
If you look just Nov 06 versus Nov 07
Nov 06: 278,000
Nov 07: 285,000
%2.52 strictly year over year.
It appears the fish are getting even bigger! Probably there is a new law that you must toss back small fish, or maybe it has something to do with that “subprime” thingy I keep hearing about.
http://www.treasury.gov/
“I starting to notice the tendency for the RMLS folks to round up a bit more lately.”
I’d love to see this realtor-run organization undergo an independent audit. Their data is provided “as is…with no guarantee of accuracy“.
Portland is imitating other cities perfectly. Larger pricier houses are still selling well and are skewing both median and the average prices.
S&P Case-Shiller real estate numbers WILL, of course, show declines soon.
S&P Case-Shiller real estate numbers WILL, of course, show declines soon.
Didn’t Case-Shiller already show MoM declines in the last report?
JP: the “plankton” is dying. The first-time buyers are having trouble being buyers. Yes, that’s certainly one explanation for these numbers, though, I’m growing more skeptical of these RMLS numbers every month. It’s one set of numbers and it always comes out being the rosiest set of numbers out there. And “interestingly” it ends up being the most widely reported set. At best, the RMLS numbers don’t seem to be telling the whole story… at worst they are telling a very skewed story.
Gee, you wouldn’t be saying that RMLS is biased, would you? I’m shocked, just shocked!
Some people only like to see gloom and doom numbers. Any sign that the market is recovering requires them to think differently
Some people only like to see gloom and doom numbers. Any sign that the market is recovering requires them to think differently
Hi Austinrelo,
Can you please tell us what “market is recovering” means? I just want to get an idea on what you think is a normal appreciation rate for PDX.
It means -
“Please let the market recover in the spring or I’m going to lose my shirt on this house !”
Stats on independent sites that don’t “Massage” the numbers indicate PDX is dropping and has been for a while.
http://www.housing-watch.com/regionview.aspx?city=Portland
Some people only like to see gloom and doom numbers. Any sign that the market is recovering requires them to think differently
When those numbers come from a source that is not transparent about it’s process and has a vested interest in making them look better than they actually are then one certainly has the right to think critically.
Even a local mortgage broker is questioning these RMLS numbers (from the Portland Housing Blog):
Michelle Berry, Broker said…
Funny, RMLS released their monthly reports today. We were up! Up! UP! last month in values and down! Down! DOWN! in inventory. Huzzah!
So I take this data, and look at the areas in Beaverton that I specialize in, and it does not compute. I look at other areas I’ve worked and it does not compute.
I think the biggest mistake realtors and loan brokers make is happily sticking their head in the sand, being blissfully pacified by these shamelessly skewed numbers. They are not fullfilling their fiduciary duties to their clients if they are not students of their local market.
check out the whole post over at The Portland Housing blog
Correction: I think Michelle Berry is actually a real estate broker, not a mortgage broker.
“Some people only like to see gloom and doom numbers. Any sign that the market is recovering requires them to think differently
”
My translation:
Some people only like to see with rose colored glasses, everything is great in the numbers. Any sign that the market is declining requires them to think differently
Ralph:
“Market is recovering” is an admission of existing poor conditions that will be getting better. In some way I am surprise that the “market could recover” as there never was, nor does there currently exist a problem, right?
If twisting words and/or saying that Portland realestate is going downhill, makes you happy – be my guest
I dont know why a stable and health PDX realestate makes you angry or jealous or both.
PDX market is recovering — yes recovering. Which means that the 6%+ YoY appreciation years are headed our way soon. Glass is half full.
I dont know why a stable and health PDX realestate makes you angry or jealous or both.
Stable and healthy are great things. Please do not put words in my mouth or emotions in my heart.
6%+ YoY appreciation years are headed our way soon.
The RMLS folks are telling you appreciation is at %7 right now. So if you look through their glasses we’re right on the mark for you. Where is the problem that needs recovering from?
Well, just to narrow things a bit- I think we all agree that total days on the market and the over supply of homes is a “problem” that everyone acknowledges.
I personally think that shows that underlying all of this is a loss of liquidity and perhaps a transaction to transaction for a single property depreciation from 2006 to 2007.
I think we all agree that total days on the market and the over supply of homes is a “problem” that everyone acknowledges.
Wellllll. Is it a “problem” or a correction that is healthy for the overall market? What is the metric for a healthy market? Six months of inventory? 12? 18? I bet 9% interest rates looked great when they were retreating from high teens.
>>I dont know why a stable and health PDX realestate makes you angry or jealous or both.<<
Compared to historical behavior, the last five years of rapid price appreciation in the housing market are *NOT* stable by any definition of the word. Furthermore, if you equate stable with healthy, you would also have to conclude that it is not healthy.
“PDX market is recovering — yes recovering. Which means that the 6%+ YoY appreciation years are headed our way soon. Glass is half full.”
Just who is included in your use of “our?”
Buyers? Sellers? Renters? Lenders?
The response to my post from some folks is exactly what I expected. People will ask what makes me optimistic for 6% appreciation but at the same time ignore telling me:
1. What emperical data suggests the gloom and doom predictions of a *PDX* realestate free fall? (Now dont start telling me that in FL such and such happened…)
2. Why it makes them happy to want to see equity of first time and non-investment PDX buyers fall drastically, specially those who invested in PDX the last 2 years? (FYI, I bought mine in 2001, so I am not too worried). If you can’t say anything nice, what makes you so compelled to say harsh things?
3. What if the PDX realestate does fall 10%+ but the interest rate climb to 8%+ rates? What’s better for a prospective buyer?
4. What the definition of stable market for them? One that depreciates?
A stable market has a rational price to income ratio for buyers and an ownership ratio in line with historic norms. Both of these remain way out of whack in Portland. I wouldn’t use the term “happy” to describe posters who point out an irrational market is falling/will fall. They/I do however do feel vindicated that their/my observations and warnings have/will pan out. Buying assets in a bubble is a zero sum game. Word out, Holmes.
austinrelo-
“What emperical data suggests the gloom and doom predictions of a *PDX* realestate free fall?”
I have posted about this in the past. The FDIC estimates that 1,200,000 mortgages will have interest rate adjustments from December 2007 through December 31, 2008. Given the current outlook, the rates will adjust upward (again, I cannot predict the future with 100% certainty, but which direction do you think the adjustments will go?). Other analysts have provided similar estimates. One estimate that I read (I don’t have the source right here) was that 100,000 mortgages would adjust per month for about the next five years.
Next let’s look at foreclosures. Just about everywhere in the US has seen a rise in foreclosures, by just about any measure.
Lenders are not just writing checks to lend to borrowers who have a very high chance of failure, and thus as the payments adjust up (assuming the adjustment in rate is upward, as noted above), homeowners have little options for refinancing their way out.
Finally the ratio of market value to rent is very high. This may suggest that rent is too low. Have we seen a big increase in rental rates? No by my survey. In fact, I have seen more “for rent” signs than ever before. From my limited survey, rents are going down, like the underlying market value.
It’s classic: random walk versus trend analysis…
Oh, and one more thing:
“What the definition of stable market for them?”
An oversimplified definition of a stable market is one where supply approximates demand AND changes in supply approximate changes in demand.
People will ask what makes me optimistic for 6% appreciation but at
the same time ignore telling me
I’m sorry austinrelo, I don’t recall you asking any questions until
now. You made a few statements that other posted asked you questions
about that you haven’t responded to yet.
What emperical data suggests the gloom and doom predictions of a
*PDX* realestate free fall?
I think “free fall” is a bit overstated. But I personally feel that the market is due for a correction. Median household income has dropped 6% since January of 2004 at the same time the Median home price went up 54%.
Here is a chart I’ve thrown together comparing months of inventory to %YoY appreciation.
Why it makes them happy…
Straw Man
What if the PDX realestate does fall 10%+ but the interest rate climb to 8%+ rates? What’s better for a prospective buyer?
That entirely depends on the buyer’s purpose and how long they are going to be in their home.
What the definition of stable market for them? One that depreciates?
Who is them? As for markets, they fluctuate. Stable is one where appreciation is nominal and in check with inflation. Where fundamentals between salary and home price return to historical norms.
Ralph-
Nice chart. It shows the inverse relationship between months of inventory and YOY appreciation. When demand was high, as measured by low months of inventory, YOY appreciation was also high.
If we were to use trend analysis, it looks like we could head into negative territory soon.
1. The most obvious empirical support for a price decline in PDX is that price/rent ratios have suddenly deviated from historical norms. More specifically, housing prices have increased greatly, while rent has increased moderately, if at all when adjusted for inflation. Of the two, rent is a more accurate indicator of housing fundamentals like supply and demand because unlike housing prices, you cannot pay for your rent with funny financing; you have to use real money that you earn. As such, it is far more likely that housing is overpriced than that rent is underpriced. Hence, it is likely that housing prices will fall to bring price/rent ratios back to the historical trend. (Note that it is the price/rent ratio that returns to historical norms, not the appreciation, because you pay for housing with money, not with the rate of change of money.)
2. doesn’t make me happy to see other people lose money. But personally, I find speculative bubbles fascinating, so I am excited to witness one in person. Fundamentally, I see little difference between this bubble and the Dutch Tulip Bubble.
3. Easy: high interest rates and low prices are better for the buyer. If you get a mortgage with a high interest rate, you can refinance when rates drop. But if you buy at a high price, you won’t be able to move when prices drop.
4. Stable has a pretty conventional definition. If you move an object out of its stable position, then it will tend to return to that position when displace. If a ball is sitting at the bottom of a bowl, and you nudge it to the right, it will move back to the left, overshoot, and eventually come to rest at the bottom of the bowl again. Likewise with stable prices. Note that stable *appreciation* would actually mean unstable prices and therefore an unstable market. In order for that ball to be stable, it has to move to the left, not just to the right.
Leo-
First let me start by staying: Happy first derivative day!!! Today is one of the two days that the Earth is “stable,” albeit only for a moment.
We can have a stable market with rising prices. In fact, we generally expect some inflation. Unstablity is more about unexpected changes. In other words, changing price may be stable, if they are expected.
JP-
Good point. I was just leaving inflation out of it to make the picture simpler.
I was also trying to make a distinction between a system at rest versus a system that is stable. For example, a ball balanced on the edge of the bowl would also be at rest, but it wouldn’t be stable. This would be an example of a system that was unstable even though the result is entirely predictable (kind of like a bubble).
And just to make sure the horse is really dead:
Yes, you can have a stable market with rising prices. But it is stable only when rising prices drive down demand, which in turn puts downward pressure on prices. Hence my bowl analogy: the system must be able to move in both directions, and the further you drive the system in one direction, the stronger it pulls back to the opposite direction.
In contrast, what we witnessed in the RE market is this: higher prices did not drive demand down but instead drove it even higher because demand was fueled by speculation on future appreciation. This is an unstable system because it only moves in one direction (like an avalanche).
In derivative language, the second derivative is positive (unstable) instead of negative (stable).
Leo-
This is a good point: “higher prices did not drive demand down but instead drove it even higher because demand was fueled by speculation on future appreciation.”
I call it the “always a bigger fool” strategy. Remember Enron?
I had an 80 year old man tell me this years ago: “The tax code has changed. It’s not a question of if the real estate market will decline, it’s only a question of when.” Then he went further and said, “I might not be alive then.”
Finally I called a friend and asked if he sold his gold. He purchased gold back in 1979/1980 and he said he would not sell until the price went back to $800, as he did not want to “lose money.” If this were not true, it would be funny. I guess it “only” took him ~27 years to recover…
“In derivative language, the second derivative is positive (unstable) instead of negative (stable).”
It seems like we need the second derivative to be zero, not positive or negative. If the second derivative averaged (near) zero over time, and the third derivative was sufficiently small at all points in time, then we would be ok too. I guess we might want to think in terms of statics too: A pendulum that is not in motion is only stable if the center of gravity is near the bottom, not the top…
This will give me something to ponder: Make some reasonable assumptions and then rigorously define “stable prices” in mathematical terms.
I really think that this is the fundamental distinction between a normal market vs. a bubble market.
Every historical bubble has shared this feature: higher prices lead to increased demand instead of decreased demand. In essence, the market loses its self-correction mechanism and thereby becomes unstable. We can argue all day long about “fundamentals” and supply and demand, but as long as higher prices do not lead to lower demand, there is no way it could ever become stable.
Leo-
“higher prices lead to increased demand instead of decreased demand.”
Isn’t that what happened with Enron? The fundamentals just weren’t there, but people just kept demanding more as the price increased.
I’ve heard it called “market psychology” or in some cases “auction psychology.”
Any time price does not matter, there is or will eventually be a problem–excessive leverage only amplifies the underlying problem.
“higher prices lead to increased demand instead of decreased demand.”
This is a good point, I hadn’t thought of it in these terms. What you’re describing is positive feedback and as I recall from my undergrad engineering courses systems with positive feedback are inherently unstable and unsustainable.
See the Wikipedia entry on positive feedback.
We definitely had positive feedback in the real estate system here and in other parts of the US over the last few years… though it’s dampening in most areas now.
TiP-
I am not an engineer, but I have been around engineering for many years. Positive feedback appears to suggest that there is some sort of memory in the markets: If they are going up, buy, and if something is going down, sell.
I have been to many casinos, and I have heard many strategies to beating the casino. When I was at the craps table once, a person who had never played before walked up next to me. They started asking how the game is played. I said, “Do you want to learn the fast or slow way?” The reply was “the fast way.” I said the fast way is to just hand your money to the dealer and leave–it doesn’t get much faster. In any event, many craps players seem to think the dice have some sort of memory–a winning streak is viewed as “positive feedback.” In fact some players consider who is throwing the dice–last time he or she was either a “good” or “bad” roller–whatever that means.
It might be interesting to compute the expected number of tosses of an average roller…
In any event, is there any memory in home prices?
A recent AP survey of 335 million credit card accounts suggests that many americans are living far beyond their means. Delinquencies were up 26% and serious delinquencies (>90 days) were up 50%. This ominous sign of consumer distress suggests that the (sub)prime mortgage problem is going to get even uglier in ’08.
Austinrelo,
I suggest you explore the widely respected case-shiller index. We are currently barely hanging on to 2% YOY in this index. I expect the YOY numbers to turn negative in the next few months.
The propensity of PDXers to buy homes with neg-am loans (IO and PO) suggests that PDX region will be hit harder by price declines than other areas. This was discussed in previous threads on this blog.
The propensity of PDXers to buy homes with neg-am loans (IO and PO) suggests that PDX region will be hit harder by price declines than other areas.
Couldn’t agree more. I suspect down 10-15 percent by June, and ending ’08 down 20 percent at least, YOY. PDX restaurants are also going to take a huge hit, when ARMs begin to reset and all the baristas and designers switch from tapas to mac ‘n cheese. It’s not going to be pretty. I’m worried about Charles.
Tiffany-
I know you made this prediction: “I suspect down 10-15 percent by June, and ending ’08 down 20 percent at least, YOY.”
My own survey data (not 100% scientific, but I understand the limitations) suggests that during 2007 individual home prices have generally fallen what I will call “about ten percent.” The only reason that Charles can suggest any “textbook price appreciation” is the formula used to compute the number does not consider the mix of homes.
How is this revealed in the data presented? Take a look at the increase in “average sale price” versus the increase in “median sale price.” If the distribution remained the same, then the difference in increase between the two would be zero, but the “average sale price” increased much more than the “median sale price.” I does not matter that the “big fish” are a little smaller, as there are now a greater percentage of “big fish” (using Charles’ fish term from a few posts back). In other words, while every fish in the pond is getting smaller, rather than larger, on ‘average’ larger fish are being caught. Also note that far fewer fish are being caught. This is shown in the “closed sales” number.
Maybe we could look at total volume (TV) = average sale X number of sales
TV(Nov 2006) = 2,163 X $322,400 ~ $700 M
TV(Nov 2007) = 1,733 X $344,500 ~ $600 M
In other words, there is a $100 M reduction in sales, or $6 M less in commissions at an average total commission of 6% of sale.
Yes, we have a reduction of $100 M on a base of about $700 million, yet we also have an increase in Charles’ so-called “textbook appreciation.” By the way, I went to a different school, and my real estate books were far different, and I am not a NAR member.
Total volume has decreased by about 14%, but have we seen a decrease in agents by 14%? I am not one of those who are trying to grab at the remaining ~86%–I would also guess that the reduction is not evenly distributed among the agents. Another way to look at this is to ask who would have earned the approximate $6M had the total volume remained about the same as last year?
Again, I have a hard time trying to guess what the distribution of purchases will be relative to the reduction in market value of the homes–Charles’ “appreciation” number may actually increase, but that is hiding the true condition of the market, as it hides the shift in distribution of sales.
What do I recommend in this market? Offer a price so low that the seller should feel insulted. Then come back about a month later with a little better offer (or a lower price, if market conditions have changed too much, but if the first offer was sufficiently low, then the second offer can be more, if the declining market stays stable). It’s not like sellers have a line of buyers, and as a buyer, I can always increase the price a little later.
OH! And let me get this out right now:
If the BV data is included in the December numbers, and I have no way to know one way or the other, then there will be a VERY LARGE increase in appreciation!!!
$65 Million on 141 homes = Average sale price of $461 k. The dumping of 141 homes at that average will certainly increase the overall averages, if the data is included. I also note that the builder claims that the final sale price was “below the cost of production.” In other words, here we have a relatively high average sale price, but we also have the builder who signals disappointment at the final outcome–shouldn’d he be happy to increase the “textbook appreciation” for the entire Portland metro area?
The BV Factor is interesting. I don’t know how RMLS calculates this sort of thing. Were they all listed (as was the case with the Civic and the Big/Little Fish)? There is Sold but Not Listed catagory which is purely for comps but I don’t think it gets used much.
Some stats from 2006 and 2007:
Nov 2007 14,435 listings DOM 67 Inventory ratio 8.3 months.
Nov 2006 10,964 listings DOM 51 Inventory ratio 5.1 months.
Increase in 24% in physical listings.
Increase of 24% days on market.
39% increase in the inventory ratio.
Charles–
Again we went to a different school:
From 10,964 to 14,435 is approximatly 11 to 14, which it should be clear is closer to 30%, not 24%.
DOM went from ~50 to ~67, so the increase is about 33%.
5.1 to 8.3 is clearly more than 40%! (2/5 is exacly 40%, and the increase was over 3!) So it’s more than a 60% increase.
Also, what do you make of the increased ratio of the number of listing to the DOM?
Maybe my jet lagged math is off: 10,964/14,435 = .759 = a 24% difference. Right?
You have it wrong. According to your math: If the number went from 100 to 200, then 100/200 = .50, or a 50% increase, but we both know it’s a 100% increase.
(14,435-10,964) = an increase in count of 3,471. Thus we have increase 3,471 on a base of 10,964, or 3,471/10,964 = ~0.317 = ~31.7%
And so on.
closing the bold.
austinrelo…?
Charles-
It should be clear that DOM is always positive, but could be near zero, so DOM is bounded from below at zero (in other words, there is no chance of having a negative DOM).
What is DOM bounded above by? It is my understanding that DOM is about individual listings, which may vary in length by individual contract. That being said, I doubt there are many agents that write contracts over six months (all I need is some far out upper bound to establish that it exists–use 30 years if necessary). Triming that down to the “average” contract lenghth, I bet we have a maximum of about 90 days.
Inventory as measured in months has the same lower bound but does not have that same upper bound. As the sales approach zero, inventory in months increases drastically (from the inverse relationship). In fact, inventory in months is not bounded the same way that DOM is. I doubt that DOM will ever be 240 [=about eight months], as I doubt that contracts will ever be that long. Inventory in months could, however, spike to years if we have enough of a slowdown.
What do you think is a reasonable way to analyze the relative differences and changes between these two metrics?