Posts filed under “Markets”

A Closer Look at Housing “Deceleration”

One of the issues I am constantly pushing back against are the spinmeisters who purposely falsify data, news or commentary to meet their agenda. At best, they ignore the obvious and spin the not so obvious. Many of the subjects I cover are a result of trying to clarify the bull$%# I read and hear elsewhere.

The latest source of nonsense courtesy of the sunshine crowd? The Q2 OFHEO report. I took particular issue with comments like "Home Prices Holding Up." That represents willful ignorance to me.

Consider this: The Office of Federal Housing Enterprise Oversight called the shift in home prices "the largest deceleration in 3 decades." Even the ususally demure director of OFHEO was quoted as saying "These data are a strong indication that the housing market is cooling in a very significant way." That’s quite a negative commentary — even more so when you consider it only covered Q2 (up to June 30 ’06). So we’ve have 2 more months of "Price Deceleration" since that data was assembled. Gee, I wonder if home prices somehow re-accelerated?

What makes the "Home Prices Holding Up" stuff such nonsense is that there isn’t a national market for homes; instead, we have a series of regional markets. Watch what happens to the "Prices Holding Up" meme when we dissect the real estate economy region by region:

"Prices of traditional single-family dwellings fell in 87 of the nation’s 379 major metropolitan areas from the first quarter to the second, the government reported yesterday, as the overall value of homes leveled off across the country.

On a quarterly basis, prices were lower in Boston, Sacramento, Pittsburgh and much of the Midwest, where the loss of manufacturing jobs has hit the housing market hard…

Price declines are spreading to more parts of the country. The 89 areas affected in the second quarter compares to 66 metropolitan areas where prices fell in the first three months of the year. In the fourth quarter last year, only 29 areas reported such declines."

For you students of the technical analysis, that is what we call a Trend.

Here’s a math quiz:  Fill in the blank:

29, 66, 89, ___

Anything in the 110-130 range gets you an "A." If you can explain why 150 is an acceptable answer, you get extra credit.

The question, by the way, is "How many metropolitan areas showed price deceleration in Q3 2006?" The math is pretty simple here: If this was a ECON 101 exam instead of math, you would see this question:

Increased inventory supply, and decreased demand = ?

The answer is "decreased prices."

That’s why  the Prices Holding Up stuff is utter fantasy. We discussed this a few weeks ago –  the way the data is assembled can give the appearance of stable prices: Why Don’t Big Housing Sales Drop Produce Big Price Drops?

Talk to any real estate agent you know personally — especially on either coast — and they will give you the straight dope as to traffic, sales and price reductions. I don’t believe prices are remotely holding up (just as I don’t believe Labor Costs have risen appreciably.

More later . . .


Home Prices Fall in Nearly One-Fourth of Metropolitan Regions
NYT, September 6, 20

OFHEO House Price Index Shows Largest Deceleration in Three Decades
Office of Federal Housing Enterprise Oversight (OFHEO), September 5, 2006

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