More despair or signs of hope? It's how you cut the numbers
All the statistic junkies out there are going to love this question.
But really, it’s legitimate and it’s one I grapple with. While year-over-year comparisons are the gold standard, are there times when it makes sense to look at the month over month trends as well?
It’s a question, as you will see, that is pretty key when it comes to interpreting April’s home and condo sales numbers.
The latest home sales numbers, just released by the Massachusetts Association of Realtors, are certainly nothing to write home about.
Both sales and prices are down yet again, by double digits, on a year over year basis. Single-family sales were down 13 percent, while prices were not far behind, falling 12.5 percent.
Condos were also hammered on a year-over year basis, with median prices falling more than 14 percent and sale by twice that.
While acknowledging the year-over-year declines, MAR, in its press release outlining the numbers, points to a couple factors it finds hopeful.
For starters, the price decreases, even on a year-over-year basis, while substantial, were the smallest since last fall.
But the real estate industry group points to a series of month-over- month trends it contends bode well for the direction of the market.
The median sale price for a single family home actually rose nearly 8 percent from March to April, too $275,000. It is the largest, month-to-month increase it has ever recorded, MAR contends. Home sales were also up 9.6 percent, on a month-to-month basis, in April.
Condo prices, on a month-to-month basis, were up 5.1 percent to $224,500, while total sales were up 4.4 percent in April over March.
OK, I can already anticipate the flood of comments taking MAR to task for supposedly trying to find a silver lining amid some pretty dismal numbers.
I remember being lectured a few years ago by some Realtor types, when, as a reporter for the Boston Herald, I played up some month-to-month changes.
In that case, those were month-to-month price declines back when the market was nearing its peak.
The logic at the time was the market starting to shift and the changes were likely easier to pick up looking at the month-to-month numbers.
I think that was a legitimate approach then, though one that needs to be used carefully.
And I think it still holds true when the market is changing again, albeit in a different direction.
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The recent boost is likely because of the $8k credit for first time buyers and dip in mortgage rates. That the numbers aren't higher probably means we're not even close to the bottom for prices. This bottoming out process will likely take a few years more, and I wouldn't buy anything that I don't want to own for at least 10 years.
"While year-over-year comparisons are the gold standard, are there times when it makes sense to look at the month over month trends as well?"
For an individual company during its first 2 years of operation, Maybe. Other than that, No.
While year-over-year comparisons are the gold standard, are there times when it makes sense to look at the month over month trends as well?
Yes, such as when you are a realtor trying to beat a commission out of a hapless buyer, or when you are trying to sell advertising space to developers. Then, it makes perfect sense to harp on springtime month-to-month numbers, much as MAR and the Globe did last year at this time. Buyers who relied on that upbeat analysis have lost much or all of their down payments by now.
For those interested in facts, rather than spin, consider the data on purchase mortgage applications, which are dead in the water; Case-Shiller numbers, which came back worse than anticipated; and statistics showing the complete disappearance of the move-up buyer.
Have you ever noticed that RE sales number for each month are not equal? They should be higher during spring and summer and lower for the other time of the year. Compare April's number to March's is the same as comparing a 6th grader with a 1st grader and saying the former is more intelligent.
If the number is not adjusted to annual rate, it means nothing but a lie.
All stats are imperfect estimates by their nature. This is especially true when sales volumes are down and sample sizes are small. The big picture is clear. Current home prices are still too high. Prices will continue to fall until buyers can afford to purchase homes with traditional financing. Interestingly, this is not the result of buyers waking up and suddenly making prudent purchase decisions (although this arguably is part of it). Rather, it is an issue of financing. Banks will no longer lend money recklessly to speculators. In other words, if the buyer can't afford to service the mortgage, the bank won't lend the money and the deal is scuttled. That is why volume is way down and prices continue to fall. It's as simple as that. And we have at least another 30% to go before prices are affordable.
That said, my comments on the MAR's interpretation of MOM data points:
MOM increases in price and volume are mostly the result of seasonality and noise. Look at the historical charts for median home prices for 2008, 2007, 2006 (available on the MAR site). The picture looks pretty much the same each year. Prices and volumes increase until July, then trail off for the remainder of the year. 2009 year is no different. In general, YOY provides a much more meaningful view of price trends. This used to be explicitly noted on the NAR site. However, they have since deleted this footnote... Hmmm. I wonder why?
Another thing, I didn't have a chance to do too much digging around on the methodology the MAR uses to compile data. Anybody know the margin of error for these data points? The NAR is notorious for publishing statistically insignificant findings. I'd be interested to know if the MAR is guilty of the same malfeasance.
Hey Scott,
Can we get an update on your story about 'Sarah'? I really thought that was great work and really interesting. I would think she stayed put at least for now.
I agree with George.
A.) I am buying only if I can comfortably handle the monthly nut. $1,800 PITI. We make $115k combined but in this economy everyone's job is at risk so we will operate off of one of our salaries.
B.) If we do buy I better envision living in that house for a very long time 10+ years. We are 28 yrs of age.
C.) No Condos... Look at all the people who are desperately trying to get out of them. Nuff said on condos.
Keep Waiting Fellas! Time is on our side.
You can't analyze a long term trend with short term data. If you are using MOM numbers to justify a change from bear market to bull market, then you need to rethink your analysis.
To use the stock market analogy, traders use short term indicators (e.g 10 day moving average) as buy and sell points, but use long term indicators (e.g. 200 day moving average) for overall market trends. So, even traders, look at 6 months worth of data to determine long term trends. Since real estate is not liquid like stocks and not subject to daily price gyrations, looking at MOM data in real estate is of little use (other than to perpetuate NAR propaganda :)
A bear market bottoms and turns into a bull market when a series of higher highs and higher lows are made. It can take many months for this pattern to emerge in stocks. And it will take many, many months for this pattern to emerge in real estate. Look at the Case Shiller data from the bust in the early 90's. The bottom occurred 43 months after the bear market started, but it took another 7 months before a higher high was made and 15 months before a higher low was made. And at that point home prices were only up roughly 5% from their bottom.
That's why you can't time a market, be it stocks or real estate. Bottoms (or tops) can only be confirmed with lagging indicators. One can use fundamentals, to make an educated guess if a market has bottomed (or peaked), but you will not know until later if you are correct.
The averages are going to tell very little. WIth such an old housing stock, many homes in the region are still far overpriced and do not account for deferred maintenance. At the same time, lets be honest - there really are not that many well planned (good layout) homes, in good condition, in great communities in Boston and Boston Metro. You can rant and rave all you want and threaten to wait until the cows to come home for better prices, but there just are not that many where the stars align. There will be RE properties that will stablize or even gain, and some (perhaps even most) will fall. Who knows what will happen with the averages. And who cares, unless you have an agenda.
This blogger might want to review your comment before posting it.
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