Top Ticking Real Estate is Different Than Stocks

Nice pair of charts from Northern Trust that show even as sales slow down:


Prices still remain relatively robust:


That may seem counter intuitive to equity traders; when you top tick a stock, its all down hill from there. But the money flow, finacing and resistance levels are different.

Except for first home buyers, top ticking on a buy  also implies top ticking the sell, too. A buyer into a over priced/high priced market is also a seller into that same pricey market.

Indeed, rolling a few $100k out of one overpriced home — and into another — is very different than buying Google at $460 or Apple at $83 . . .


UPDATE January 26, 2006 2:29pm

So I post this on the way out the door to a lunch meeting, and then in the cab on the way, I immediately think of exceptions: First time buyers, speculators, builders/developers,  etc. 

But that still leaves somewhere between 50 and 75% or so of buyers as simultaneous sellers also.

In my mind, the significance of this is that the Real Estate may slow down in a slow motion fashion also.


Housing Market Is Certainly Cooling Down
Asha Banglore
Northern Trust, January 25, 2006

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What's been said:

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  1. Michael commented on Jan 26

    Is there even a correlation between the two charts? It’s hard for me to tell.

  2. Andy commented on Jan 26

    The two charts have completely different time scales and the last inch of the bottom chart correlates with the time scale of the first chart, so it’s a tough comparison to make based on first looks.

  3. blue][erring commented on Jan 26

    yes, the time scales are different… but also, this is the ‘average’ house price and the ‘average’ percentage gain. it doesn’t touch the much wider variations in local prices that occur during these periods.


  4. GRL commented on Jan 26

    At the risk of not telling you anything you don’t already know, there are some important differences between real estate and stocks in terms of how they are priced that make it impossible for a seller or buyer of real estate to “top tick” the purchase or sale of a property. Also, because there are no margin calls, there is no real pressure to sell when the price goes down. Unless you lose your job, if you don’t like the price you can get for your house, you simply don’t put it on the market. So, the way to tell there is a bear market in real estate is to look at, not prices, which will stay flat, but inventory, which will go up at first and then down, along with the number of sales. (Of course, if there is a recession, with lots of job losses and foreclosures, then all bets are off.)

    If they priced houses the way they price stocks. and added margin requirements on mortgage loans, there would be a lot more volatility in house prices, and all the people who invest real estate because it is “safe,” instead of “risky” stocks, would be singing a different tune.

    And, if elephants had wings . . .

  5. anonimouse commented on Jan 26

    Last weekend I first heard the term “real estate soufflĂ©” proposed on the radio to replace the term “real estate bubble.” Even when the soufflĂ© falls as it comes out of the oven, it doesn’t pop like a bubble.

  6. Robert Cote commented on Jan 26

    The 50-75% overlap of simultaneous buyers as sellers means the drop on sales activity will be much much faster not slower. The deals all interlock and all unravel with but one link breaking. As Centex has shown, the sales on the margin can move very rapidly. Bought a Centex home last week? You are $105,000 underwater this week. Stickiness only applies when there is some general cost basis parity. The recent run ups have caused similar properties to have wildly differing basises and carrying costs. In upscale neighborhoods you’ve got 60 year old couples paying $400/month PITI next to flippers/investors paying $12,000/mo for the same thing.

  7. todd commented on Jan 26

    I think it’s going to take an economic downturn to bring the prices down. Only banks have a motive to sell at whatever price they can get. When the weak hands have to foreclose, the ball will get rolling…

  8. mynewsbot commented on Jan 26

    Keep an eye on all the news .. OIL going to 100 according to Goldman

  9. blue][erring commented on Jan 26

    i don’t know about oil so much as the very quick pace that the 10year yields are taking in front of the massive supply coming online over the next weeks. houses are highly leveraged HIGHLY leveraged… when the cost of finance goes up, the amount to borrow goes down. and somewhere in there i would think loose lending would tighten up, it has been already, raising credit score requirements on 2nds… charging more points for nodoc loans. watching the 10…

  10. kennycan commented on Jan 26

    Think of the equity market 1998-99 as a preview to the RE market 2005-6. In 98-99 an ever narrower group of overpriced stocks kept getting more overpriced, pushing the averages up. However, an ever increasing amount of stocks were drifting lower (many times on lower volume) and so the internals of the market (breadth, new lows vs new highs etc) were deteriorating. I think the same things are happening now in RE. A certain group of people are still caught up in the euphoria, bidding up “hot” market areas of Real Estate while the internals of the RE mkt as a whole deteriorate. In the case of RE it shows up first in rising unsold inventories and lower sales volumes, before the “averages” show a price decline.

  11. RP commented on Jan 26

    I’ve heard indirectly that Centex raised the prices for their weekend “sale” in at least one location, so that they’d be able to mark them down $XK and still be higher priced than before the sale weekend. If true, that puts an end to that anecdote, assuming they made their sales goal.

  12. Larry Nusbaum, Scottsdale commented on Jan 26

    Barry: Phoenix has been and remains the best housing market in the country. However, supply (6 months) has finally caught up with demad. So, now, we have equallibrium. That hasn’t happend for about 2 years.
    According the well respected chief economist of the NAR 2006 is forecasted to be the second best year for resales in history. 2005 (record year) beat 2004 which turned out to be a bit of a surprise. It should be noted that December’s numbers saw a huge drop off.
    He also predicted a 9-12% price appreciation for the Southwest in 2006 (and a few other major cities)

  13. Bengal commented on Jan 26

    According to the second graphic (year over year price change in either percent or $ thousands, the subtitle says both), average housing prices have NEVER declined, at all, for the 36-year duration of the series. Not even once! So either (1) there’s no point in looking for prices to turn down, because they “never” do or (2) the underlying data is flawed. I haven’t independently researched this, but (2) seems much more likely.

  14. Doug commented on Mar 1

    I’ve seen articles on a 50 and even 100-year mortgages as yet another tool to permit folks to buy more house than they can afford and as a thumb in the dike of the coming housing market downturn. Any thoughts on the longterm effect of such mortgages?

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